Mortgage rates continue to drop for the past couple of months, which could mean that homeowners could save a chunk of their money by refinancing. The dip presents an excellent opportunity for both buyers and existing homeowners to get the most affordable interest rates since 2017. At least 6.8 million homeowners can qualify for a refinance and save around $268 from their payments each month. However, it is not all about the rate. Remember that rates vary from one lender to another. Although the mortgage rate in Tempe dropping is an excellent opportunity to save on the mortgage costs, the amount will still vary depending on the mortgage rates offers that the homeowners have. But how does refinancing work?
Understanding the refinancing process
Refinancing is the process of replacing the existing mortgage with a new one. Most people often choose to refinance their mortgage to reduce their monthly loan payments. Some want to do it to take advantage of the low interest rate. Meanwhile, others decide to refinance their loan to change it from an adjustable rate mortgage (ARM) to a fixed-rate mortgage. But no matter what your reason may be, the process behind refinancing works similarly as when you apply for your first home loan. But are there any risks to it?
The risks of mortgage refinancing
Like everything else, loan refinancing also has its risks. Depending on your goals as well as your financial situation, refinancing may not be the best choice for you. Refinancing your mortgage means that your amortization process will get restarted. If you have only five years remaining on your 30-year loan, you will be taking out a completely new 30-year mortgage. This means that you still have 35 years to get rid of your loan entirely.
For some people, it seems like a logical plan. But for others, it means that they will have to pay for their loan for almost their entire lives. Being trapped with a mortgage can even get them deeper into debt, which can make it difficult for them to repay it in the future. If the value of their house is not appreciating as swiftly as their current debt, then they will not have enough money to pay the mortgage off if they decide to sell it. Also, repeatedly extending the loan will cause them to pay more interest rate in the future.
When is the right time to refinance mortgage?
Before you consider prolonging your mortgage, you first need to establish the reason you choose to refinance. Also, consider your long-term financial goals and how your decision can affect it. You should also run an amortization schedule on your current home loan and compare it with the refinanced mortgage that you want to avail. Compare each and see which one is more expensive. If you feel like refinancing is a great option, feel free to contact your mortgage provider to know more about it.
It is crucial that you compare the numbers so that you can make the right decisions. Try to speak with an expert about any of the loan offers to get the proper guidance to successful refinancing.