Refinancing
Refinancing is basically taking out a new mortgage to replace you current mortgage. There are a number of reasons you would want to do this. Usually you can Refi for a better rate or just because you need more cash.
Refinancing is one of those things that many people over look. In many cases, it can save you a bundle. Many first-time home buyers don’t even know what it is. Until I purchased my second mortgage, I have to be honest, I wasn’t sure of Refi-ing.
One of the things that most people forget is that when you Refinance your mortgage, there are closing costs attached to it. In most cases, close to $10,000 or more. For example you refinance a $200,000 loan with closing costs of $8,000. Now you owe the bank $208,000. Keep this in mind when you consider refinancing.
Here are the main situations that refinancing can save you a bundle:
1. Drops in interest rates-
The basic rule of thumb is that you need to drop interest rates at least a full point for it to be worth it. But, I have seen some great drops at 3/4 of a point.
2. Reducing Monthly Payments-
If you have a 15 year mortgage and you find yourself in a bad situation that requires you to find a way to save more, switching to a 30 year mortgage can greatly help you out.
3. Cashing Out Some Equity-
If you have high interest debt that is more than your standard home equity of $50,000, Refi-ing may be a way to change that to tax deductible debt at a much better interest rate.
4. Getting Rid Of PMI-
Private mortgage insurance is the bain of my existance. PMI protects the banks from complete loss in the event that a borrower defaults on the mortgage. Bascially you pay to cover the banks butt. If you own less than 20% of your home, most banks require you pay for this. The biggest waste of money ever.
You should get rid of PMI ASAP! When rates take a turn for the better, you usually get out of this with ease. Here’s the trick:
Call the bank and say “I am think of Refinancing with another bank! The rates are now swaying in my direction. Can you provide me any reason not to leave?” They will schedule an appraisal for you right away that tell you your house is worth more, so you have the 20% equity to cancel. In many circumstances, they’ll offer you a refi with low-low closing costs.
See if it’s worth it for you. Here is a cool Refinancing Mortgage Calculator