Who Should Refinance into a Shorter Term Mortgage?

If you have a 30-year mortgage and are considering refinancing to a mortgage with a shorter length, there are some things you need to consider: Although it might seem like an attractive idea on paper, in actuality, a new mortgage with a shorter life might be difficult to handle for some people. But for those who want to pay their home off faster. build equity quicker or pay less overall interest on the life of the loan, then a refinance to a shorter-term mortgage might be the way to go to accomplish these things.

Increased payments

If you go from a 30-year mortgage to a 15-year, your monthly payment will most likely increase, and for many the increase will be significant. However, if you end up with a much lower interest rate on the 15-year than you had on the 30-year, your payment might not increase much at all. But to be on the safe side, make sure you have the disposable income to handle an increase in the mortgage payments. You will also need to prove a great debt to income ratio. This will show potential lenders that you will be able to handle the increase in the mortgage payment without causing a significant financial hardship.

Staying Put or Packing it Up

If you plan to stay in your home for more than three years, then refinancing downward from a 30-year mortgage is a viable option. If you aren’t planning to stay in the home for a significant period of time, then the closing costs of the refinance might make the change an unwise decision. On a related note, if you are in year 18 of a 30 year mortgage, refinancing to a 15-year mortgage actually adds payment years onto your mortgage, as well as the acquired expense of closing costs.

So, what is boils down to is whether the expense of closing costs for a refinance, coupled with the increase of a monthly mortgage payment is worth having a mortgage with a shorter term. If you have the extra income and your interest rate on your current 30-year mortgage is higher than four percent, then a refinance into a 15-year mortgage is something worth considering. But if the refinance would mean you are struggling to make your monthly payments just for the sake of paying the home off sooner, then perhaps it is not a viable option for you.

There are other options, however. Many lenders offer mortgages for periods less than 30-years, but greater than 15, such as 17, 18 and 20-year mortgages. So, before you commit yourself to a new loan, shop around to different lenders and see what is available. But experts all advise that if you plan to refinance into a shorter mortgage, the time to do it is now. The historic low interests rates are not going to last forever, and if you wait too long and miss the current rates, any savings you might have enjoyed due to locking in a historic interest rate will be lost.

Refinancing Your Mortgage – Online Tips and Info

If you are a homeowner that is looking to refinance your home, it is always a good idea to educate yourself on the process of refinancing. In the economy of today’s world, the rules are not as black and white as they used to be, and while it may seem easy to get approval for home refinance, the reality is that actually only about half of the applicants actually get approved. Approval depends on a variety of factors, including your mortgage payment history, present employment and income, and your credit score. There are a variety of common mistakes that people make when applying for refinance, and by knowing what to expect beforehand and being fully prepared as well as realistic about your finances, you can improve your chances for approval and obtain the funds you need.

Online Lenders

Online lenders are becoming increasingly popular when it comes to refinancing. The reason for this is that it is much more convenient for the borrower to fill out an online application, and the borrower will usually know within 24 hours if they were approved or denied. The online route also saves the potential borrower from embarrassment if the loan happens to be denied. While there are some online lenders that are known for their deceptive practices, a variety of companies including Quicken and GMAC offer the option of applying online, and these lenders are trusted professionals.

Taking a Good Look at Your Finances

The first step you should take before applying to refinance your current mortgage online is to determine the amount of equity in your mortgage. If you have over three percent, there is a good chance that you will be approved, and usually anything less than that will most likely lead to a denial of your application. The reason for this is that with the growing amount of individuals looking to refinance, lenders are becoming more cautious about who they approve, especially in the aftermath of the real estate crisis. Calculating the amount of equity you have in your home before applying will give you a good idea on whether or not you will be approved, and it is a simple step that will save you time in the long run if it turns out you are under three percent.

Why Refinance?

The main reason that homeowners choose to refinance is that they are looking for a lower rate than the fixed rate they started out with. With the fluctuating economy, homeowners are noticing that mortgage rates are lower than a few years ago, and they are hoping to refinance in order to save money and keep their homes. Homeowners with adjustable rates are also noticing that their rates are going up, and when they initially applied they did so due to the fact in theory, they believed their rates would go down over time.

Preparation is Key

By taking the time to research online mortgage lenders as well as calculating your equity and possible rates, you will have all the tools needed in order to successfully apply and obtain refinancing. By taking a realistic approach and working with a reputable lender, you will secure the future of both your home and finances.