It is often a difficult question that perplexes a lot of homeowners, and that question is how do I know when the time is right to refinance my mortgage?
So much will depend on your financial situation of course and if your finances are not in the best shape you might want to consider options like HARP refinance at CalMtg.com, so here is a look at the various whenâ€™s, whereâ€™s and howâ€™s of your mortgage options.
Save or raise money?
There are mainly two distinct reasons why you may want to look at refinancing.
If you are looking for a better rate you may want to look at rate and term refinancing, which involves refinancing your remaining home loan balance for a lower interest rate offered by a different lender.
This option will also involve looking at the term you can afford, which is the number of years you require to repay the balance of the loan. This could mean you get a lower rate than you pay now but over a longer period to keep monthly costs down, or it could mean getting a better rate and reducing the remaining term, so that you pay the debt off quicker but increasing your monthly payments.
The other alternative is referred to as cash-out refinancing and involves taking out a new mortgage for more than you currently owe, so that you have some spare funds to pay of some existing
Pros and cons of cash-out refinancing
It can be a great feeling to clear off some of your debts and seemingly put your finances straight by clearing down a credit card debt or a personal loan, but there are pros and cons to consider.
If you use cash-out refinancing to raise the money, you should remember that while you are reducing the interest rate you are paying by putting the balance on your mortgage debt instead, you could actually end up paying more interest than before because of how long your mortgage term is.
You should also think twice about turning an unsecured debt into a secured debt, which means you are at risk of losing your home if you miss mortgage payments.
If you are facing financial hardship
If you are a homeowner in financial hardship and have a Fannie Mae or Freddie Mac guaranteed mortgage, there might be a potential solution.
The Home Affordable Refinancing Program (HARP) is a federal program that is aimed at providing assistance to homeowners who are deemed to need it most as they are facing financial hardship and donâ€™t qualify for standard refinancing options.
HARP has no loan-to-value restrictions so it could still provide help even if you owe more than your home is currently worth. It is a scheme that also does not require a property appraisal, which cuts costs down and helps to speed up the process.
Speak to a mortgage adviser about this option if you believe you may qualify for help under this particular scheme.
There are always costs
It is wise to never be under the impression that a refinance deal doesnâ€™t have costs attached to it, as there is really is no such thing as a cost-free refinancing package.
Some schemes and options are undeniably cheaper or carry less associated fees than others but even if you find a scheme where there are no upfront closing costs from the lender, it would be sensible to assume that those costs have subsequently been built into the interest rate being charged or even added to the principal balance.
It is often much more cost-effective to pay any fees at the time of taking out the finance rather than add it to the balance and be wary of any no-cost deals being offered, as there are always costs somewhere along the line.
Cost to close
Also make sure you know exactly how much it is going to cost you to close.
In addition to lenders fees there are going to be legal fees, taxes, insurances and even a transfer fee for getting the money sent through.
Fees for all of these services and transactions can vary, so it is always a good idea to ask for a full disclosure of all the costs involved with refinancing, so that you know exactly how much your new mortgage is going to cost you, not just the monthly figure, but how much you will have to find to get the deal done in the first place.
If you are a homeowner and looking for a new mortgage finance deal, it often pays to ask plenty of questions before you finally sign on the dotted line.
Josh Bartlett has been in the finance industry for over 25 years, 15 years working with the mortgage sector. He is sharing his knowledge by blogging for a range of personal finance and property blogs.