Use Caution before Refinancing – is it Worth it?

A few years ago, it seemed like everyone was on a refinancing kick. These days, it is much more difficult to get refinanced and some have realized that it can be dangerous to their financial health. Many people were fooled into sketchy refinancing loans and found out after a year that their interest rates were doomed to implode.

As of 2010, the mortgage rate for a 30 year fixed rate mortgage has hit its lowest point since the 1950s, due to an amazing 4.69% low mortgage rate. Does this mean it’s time to refinance? In today’s housing market it is wise to be more cautious.  You should consider this decision with the utmost scrutiny. There are lots of factors to take into consideration when dealing with refinancing. Here are some to think about:

• Look at the overall deal and think about what you are trying to accomplish by refinancing. What’s your goal behind the move?
• Figure out what the refinancing deal really says. Before you sign on the dotted line, read every line of the paperwork to see if they have any surprises in store.
• Review your budget to see if you will actually save money on the overall deal or if it will end up costing you more in the long haul.  The goal is to save money on the monthly mortgage payment, not to acquire more debt.
• Decide which type of terms you would prefer. Does opting for a longer mortgage payment make sense?

One of the smartest things you could do to help yourself is to hire an attorney to be present before you sign any paperwork that will have you stuck in a payment that you cannot afford. Another good tip that will help you in your evaluation process is to determine whether refinancing will improve your family’s well-being.  Go over your monthly budget and assess how much you are spending and how much the lower mortgage payment will benefit you.

Use a mortgage calculator. There is a certain formula that you can go by to give you exact numbers that should help you get a good idea if this is a good move or not.  First, take your original interest rate and the amount that you had originally borrowed from the bank.  Then, figure out how many years that you have left on the loan.  Crunch the numbers on the mortgage calculator and see what you come up with. Do the same for the new interest rate of your new mortgage payment.  This is the amount that you would be borrowing against and the new 30 year term. If the numbers haven’t made you faint, then maybe this will be a good move for you. If not, than you should look at some other avenues of getting more money into your account.