If you are planning to refinance your mortgage it is first important to determine whether or not you are going to take the right decision. There are various things which are to be considered before you are going to take out a refinance home loan. Actually in case of refinancing, you are required to take out a new loan in order to change the terms and conditions of the previous loan that you had taken to finance your home. So, it is important to first determine your affordability and to do that you can use a mortgage calculator from the different websites offering free usage of calculators.
Factors to weigh before refinancing
Some of the factors that you should weigh before actually taking out a new refinance loan are:
- Are interest rates low – It is important for you to find out if the interest rates of the current mortgages in the market are lower than that of the home loan which you had taken to refinance your home. Only if the interest rate in the mortgage market is low, can you use a refinance loan in order to topple over the terms and conditions of the previous home loan.
- Can you afford another loan – You will have to determine if you can at all afford to take to another loan. Though it is true that a refinance loan can help you in paying off the previous one, you cannot deny the fact that with this loan (more of a second mortgage) you are taking on additional responsibility of paying off the new loan. So, it is important for you to decide on your affordability and for that you can use a mortgage calculator
- Is it your only option – You need to decide if refinance is your only option to save your home from foreclosure. This is because, it is always better to add up additional debt in order to pay off previous debt. So, you need to know that you can also try to modify your loan rather than directly opting to refinance it. The results of both the processes are same. Both lower the interest rate on your mortgage and extends the loan term. But in loan modification the loan remains the same; only the interest rate and the loan term gets modified.
- What are your options – There are various options through which you can refinance your home loan. There are mainly two options through which you can refinance the home loan. One is the simple refinancing and the other is the cash out refinancing. In case of cash out refinancing, you are able to get more money than what you owe to the lender. Moreover, in order to get cash out refinancing, your home needs to have enough equity in it.
So, you can see that there are various things that you are required to consider before even taking out a refinance loan in order to simply change the terms and conditions of your home loan.
Guest Post written by Peter for MortgageFit.com
