Refinance A Home

There are times when it makes sense to refinance a mortgage. It is very important to have a clear financial objective in mind so that you are more able to choose a loan that is right for you. Ultimately, the decision is up to you to decide when it is best for you to refinance, based on your personal financial situation.

Lower Monthly Mortgage Payments

A drop of just one half to three quarters of a percentage point in interest can help you achieve a lower monthly mortgage payment. If you don't refinance, you may be paying too much every month for your home loan, and that's never a sound financial move. There are a few different ways in which you can have a lower monthly mortgage payment.

First, you can simply refinance to a lower interest rate. A lower interest rate generally means a lower monthly mortgage payment.

Second, you can change the term of your mortgage. For instance, if you have a 15-year mortgage, you can stretch it out over 30 years. Since the balance of your mortgage is spread out over a longer period of time, your loan payment is lower. However, if you have a 30-year mortgage and one of your financial goals is long-term savings, you may want to consider shortening your term to 20 or even 15 years. Your payment will be higher, but you will pay much less in interest over the life of the loan, saving you thousands of dollars in the long run.

The third way to lower your payment is to refinance to an interest-only loan. This should only be used in extreme cases where it is your last option. Basically, with an interest-only loan, the minimum amount you are required to pay is the amount of interest for a certain period of time, though you can pay as much principal as you like. But you get the flexibility to pay less if you need or want to divert your money elsewhere, such as contributing to your 401k or saving for your child’s college tuition. Again, we recommend you exhaust all other avenues before taking this route.