Thinking of refinancing your house? Make sure it makes sense.
Refinancing a mortgage means you are paying off the existing loan with money loaned to you from a financial institution and replacing it with a new loan also with money loaned to you from a financial institution .
Things to consider:
When you refinance you re-start the clock on your mortgage. What does that mean? It means that most of your monthly payments will go towards interest payments with very little going towards reducing the principal. Your payments in the early years of a loan consists of large interest payments with a much smaller amount applied to the principal.
Consider this: If you have 10 years left to pay on your mortgage and refinance into a 30 year loan, even at a lower interest rate, you will ultimately pay more in interest.
To gain insight into how much refinancing will cost you, compare the amortization schedule of your current mortgage to the amortization schedule of the new mortgage.
Consider this: If the equity in your home is less than 20%, you may have to pay Private Mortgage Insurance (PMI), which will add to your monthly payment.
Depending on your situation, there are benefits to refinancing but there are also costs that are often times not made clear to the consumer.
Do your due diligence, weigh your options and again, make sure it makes sense for your particular situation before you decide if refinancing is right for you.