What's next?
Your local mortgage company or bank is probably best able to tell you what's happening in your area.
Mortgages
Who knows where the mortgage market is headed? Is this a good time to buy, with prices low?
Should you refinance your mortgage?
The answer may be yes if you use some or all of the proceeds to pay off your existing mortgage, especially If you get a lower interest rate on your new loan than you had on your old mortgage. That can result in a lower monthly payment and, of course, lower costs over the term of the mortgage.
You will save money by refinancing.
Generally, there are two good times when it's wise to refinance your mortgage:
If you have an adjustable rate mortgage, consider refinancing when mortgage loan rates are increasing and you can refinance to a fixed rate mortgage. This is a good strategy if you can get a rate similar to your current low adjustable rate. You achieve lower costs when your adjustable rate starts rising as mortgage rates rise..
Another time it is a good idea to refinance is when you will save money by getting a lower interest rate. In this case, you should make certain that your monthly savings will cover your refinancing costs. Please remember that if you sell your home before your refinancing has paid for itself, you will not achieve any savings.
Cash flow problems
If you are experiencing cash flow difficulties, you may be tempted to lower your monthly mortgage payments by refinancing to extend the term of the loan. This strategy may help in a cash pinch but, from a savings point of view, this is not a good reason to refinance unless you can get a lower interest rate on the new loan.
Extending the term of the loan will actually cost you more if nothing else, such as the interest rate, changes. True, you can get through a tight cash flow situation, but you will end up paying more in total interest over the extended period of the new mortgage.
You should determined what your refinancing costs will be. Then you can determine how long it will take for your refinancing to pay for itself. This can be a confusing calculation so you may want an accountant or your banker to help you. Generally, it is not a good idea to rely on the calculations of the new lender, who may not include some costs in the calculation.
Cash-out and no-cash-out
Cash-out refinancing means that you borrow more when you refinance than you owe on your existing mortgage. In this situation, you may be restricted to borrowing no more than, say, 75 percent of the appraised value of your property. The excess proceeds remaining after you paid off the existing mortgage can be used for any purpose - such as paying down other debt. For example, many people pay off high-interest credit card debt.
Cash-out refinancing has advantages. The interest rate on the new mortgage will usually be lower than the interest rate on your other debts, whether they are student loans, car payments, personal loans or credit card debt.
In addition, interest on your refinanced mortgage is generally tax deductible. Interest on consumer debt is not.
But there are also disadvantages. Your refinanced mortgage will be secured by a lien on your home. We have all learned of the tragedy of foreclosures. The lender can foreclose on your home if you cannot meet the payment terms. Credit card or automobile lenders cannot take your home when you cannot pay. So be sure you are not compounding the problem that you are trying to solve by taking out the new mortgage. You could end up in greater financial difficulty later.
No-cash-out refinancing means that the amount of your new loan does not exceed your current mortgage debt. With this type refinancing, you can often borrow 90 to 95 percent of your home's appraised value.
Best for your future
Before you decide what to do, and how to manage your mortgage and other debt, you should find a trusted resource who can help you understand the financial trade-offs involved in any decision of such importance. Then, when you have the facts, you can make the best decision for your future,
