You are not alone if you are considering whether to refinance your mortgage. A refinance of your mortgage makes good financial sense when interest rates drop below the rate of your current loan. It makes a great deal of sense if your current loan has a variable interest rate that is due for an upward adjustment. Think carefully before committing to a refinance of your mortgage, though. Lenders take risks on their customers ability to repay and weigh several factors into consideration when reviewing loan applications.
First and foremost, check your credit record. Carrying several credit cards with high outstanding balances may make your lender nervous. That type of activity also casts a bad light on your financial responsibility. Be sure, however, to raise the subject with your lender if you intend to refinance your mortgage in order to pay off that debt. Determine, as well, how long you plan to remain in your current home. It will take quite a few months to repay yourself for the loan closing costs out of your monthly mortgage payment savings. Keeping that in mind, you can see why selling your home within a few years after your refinance your mortgage makes no sense.
There are a few approaches you can take when you decide to refinance your mortgage. If you have more than one mortgage on your property, you can refinance with a mortgage large enough to pay off both, leaving you with one single mortgage loan to repay. Or, you can extend the term of your current mortgage loan, stretching out your repayment time but lowering the amount of the monthly payments. The one negative to this is that you will pay more interest in the long run. Taking the opposite approach, you can refinance your mortgage with one having a shorter term and higher monthly payments. A higher monthly payment allows you to pay your principal down quicker and pay the loan off faster while lowering long term interest rates.
These scenarios assume your sole purpose is to refinance the terms of your current mortgage. Another reason to refinance your mortgage is to take out a new loan with a principal balance greater than your current mortgage, using the extra funds to pay off credit card debt or make improvements to your home. Mortgage interest is tax deductible, whereas credit card or home improvement loan interest is not. This can help a great deal at income tax time.

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by: marciafreeman
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