Unless you are independently wealthy and can purchase a home with cash, then establishing a new mortgage with a significantly low interest rate is the next best thing! The lower interest rate will save you thousands of dollars in interest over the life of the mortgage. Many people, however, find themselves looking at the option of refinancing their home mortgage for a multitude of reasons; most often to achieve a lower mortgage rate.
It’s important to know that refinancing involves costs, including broker fees, mortgage points, title insurance, appraisal fees, and potentially additional costs. These fees must be paid by cash, check, or the total amount will be added to the principal balance of the mortgage.
If you plan on staying in your home for a while, and paying the new mortgage long enough for the lower payment to make up for the added costs of refinancing, then that option may be the best one for you. However, be aware that your mortgage broker should tell you how long it will take to make up the costs. If the mortgage broker does not bring it up on his own, make sure to ask!
If your mortgage is five years old or more, refinancing to a new 30-year mortgage could result in higher interest payments, even if the rate is low. Instead, think about refinancing your home mortgage at a lower rate, but with the same final payment date as your existing mortgage. This will prevent you from paying thousands in interest. Also, refinancing to a larger mortgage and taking out cash reduces the equity in your home.
Being aware and understanding your options are the first steps to deciding whether or not to refinance your home mortgage. If you have additional questions or need help understanding the process further, contact a Clearpoint Housing Counselor at 1.877.412.2227.