Mortgage Refinance with Money Saving Objective

Mortgage refinance option is considered only if already there is a mortgage on the property and interest charged is high as compared to new interest rates being offered in the market which are considerably low and there is an opportunity to pay lesser interest by opting for refinance mortgage to pay off the earlier mortgage. It is worth considering that there is some net saving because there could be some charges on account of pre-closing of earlier mortgage.

Is Refinancing Beneficial?

Consider a situation, by which one can get more cash, reduction in monthly mortgage installment, which is accompanied by the more cash and convenience factor, which encourages for availing the refinance option.

Incidentally house property is perhaps the very high value asset one owns and requires high expenditure planning in the domestic budget. If by virtue of refinance one can reduce the expenditure on this head and get excess money invested in some other high yielding options, it is advisable to go for the refinance option available at lower interest.

Private Mortgage Insurance:

In the circumstances one is not in a position to arrange mandatory 20 % down payment, then you are required to take Private Mortgage Insurance to cover the additional risk.

If the mortgaged house has appreciated in it’s value to make up the deficit of 20 % down payment and one has been regularly making the payments of the installments, it is no more required to take the private mortgage insurance either while continuing the present mortgage or considering for refinance of the mortgage.

Low Refinance Rate & Low Installment Value:

Perhaps at the time one had built the house property the mortgage interest rates were very hostile and under a compulsion one settles to pay higher mortgage interest rate which is related to certain factors like amount of down payment one can arrange and credit rating.

In a phase of interest rate cuts, because the higher interest can not be sustained at previous higher rate because of a number of influencing factors causing down fall of interest rates by a drastic measure. This is the right time to think of refinancing of the mortgage, because now the value of asset has appreciated over the years making it to be eligible for higher value of mortgage refinance, which can be use to pay off the previous mortgage.

Refinancing Option Availability:

In practice home refinance option is available as a second mortgage finance to pay off the first. It is important to do actual evaluation of the costs of pre-closing the first mortgage and simultaneously savings of the second low interest mortgage, whether they indicate a positive benefit to pre-close.

Impact of following points is also worth considering:

Reduction of Term of Mortgage:

While considering refinance option one can effect reduction of the term of re-payment. In case the previous mortgage is for 30 years period and for eight years one has paid, now with the finances available one can effect reduction of the paying term to 10 or 15 years depending on the convenience and comfort of the borrower.

There can be substantial savings in interest to be paid because the interest rate is low. In this case one has to pay the same amount, which one was paying earlier. Thus there shall be more contribution to the principal amount and the term of payment is short.

Fixed rate mortgage ?

Refinance to lower monthly payment.