When does it make sense to refinance? The answer lies in what it can achieve for the borrower. Depending on the borrower's circumstances, good reasons to refinance could include lowering the interest rate, lowering the monthly payments, reducing the term of the loan (30 years to 15 years), and pulling out cash to pay off high, nondeductible consumer debt such as credit cards.
The bottom line is to look at the total picture of refinancing. How can this be done? The borrower can ask the lender to prepare analysis to evaluate the options. |
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The homeowner should also answer the following eight questions before refinancing:
1. How long does the homeowner plan on keeping the property?
2. What types of situations are projected in the homeowner's personal and economic future?
3. Will the cash pulled out now be used for a sound reason that makes economic sense?
4. Are there benefits to keeping the existing loan on the property?
5. Would a new loan require additional costs of PMI or impound accounts for taxes and insurance that weren't previously required?
6. How does the proposed loan compare to others based on interest rate, points, closing costs, and fluff fees?
7. How would a lower interest rate affect the homeowner's tax picture?
8. If the homeowner does want cash out, which is better for his or her situation: a new refinanced loan or a home equity line of credit?
The reality today is that a home and its equity are most peoples largest personal asset and savings account. The homeowner should make changes with the right loan and the right lender, and for the right reasons. |
