Kingston Mortgage Explains Refinancing
Refinancing can be a useful tool to lower monthly payments, but only when done properly. Refinancing is not always the right solution for every situation. Read through this article by Kingston Mortgage experts to learn in detail about how refinancing can affect you and your situation.
Should I Refinance?
Choosing to refinance is a decision that can only be made after analyzing one’s situation. One method of deciding whether refinancing is right for you is to monitor the market rate. Generally, experts say to make sure the market rate is 2% below the interest rate on your mortgage loan before you even begin to contemplate refinancing.
How Will Refinancing Affect My Debt?
Refinancing does not directly lower debt. However, refinancing does lower the interest rate and divides the remaining payments over a period of time. In order to make the most of the refinance, it is recommended to maintain monthly payments that are higher than the minimum required. In doing so, more money will go to your principal which will allow you to pay off debt faster.
When is the Best Time to Refinance?
Timing is an important factor in the decision to refinance. Refinancing is more effective for those whose monthly payments go towards interest rather than the principal balance of the loan. In general, those who have been paying their mortgage for less than 10 years are paying interest rather than the loan balance. If you are already reached the point where your monthly payment mainly goes to the balance of your mortgage loan, rather than the interest, refinancing can be more harmful than good. Under this situation, the homeowner would actually end up paying more because refinancing would cause them to revert back to paying interest rather than the loan balance.
How Does My Credit Score Affect My Ability to Refinance?
Some homeowners make the error in assuming that because their credit is good or has improved, they should be eligible for refinancing. This is not always the case. Your ability to refinance can still be negatively affected if your credit score is good or has improved, but your debt has also increased. However, if your credit is good or has improved and you have either lowered or paid off your debt, then refinancing can make a difference in your monthly mortgage payments.
ARM Mortgages and Refinancing
ARM mortgage loans close to their adjustment period may benefit from refinancing. When the interest rate on an ARM loan adjusts, it alters the monthly payment. This change in the monthly payment may surprise some homeowners. Therefore, if done properly, a homeowner who refinances their ARM mortgage loan have the option to switch to another ARM loan with a lower payment or to a 30 year fixed rate loan, which will bring stability and security to the new monthly payment.