Refinance Your Florida Mortgage Today
Here at Paramount Residential Mortgage Group, we have all mortgage loan types available. The one in particular that I want to keep you informed about today are refinance loans.
How does home mortgage refinancing work?
Generally speaking, it works in one of two ways. Either the interest rate on the mortgage is changed or the term to maturity is changed.So, for example, let us assume you have a 30-year home mortgage with an initial balance of, say, 8%. Furthermore, let us say there are 10 years left on the loan. To get a better deal, you refinance it at 6% over 30 years.
Let us further assume you have approximately $121,000 of principal left to pay off on that loan. That means your monthly mortgage payment will drop from around $1,470 to $720. This definitely improves your cash flow.
However, remember, you have signed up for another 30-year mortgage so you will be paying more in interest charges than you would on the remaining balance of your existing mortgage.
Always carefully consider all aspects of refinancing before taking this step!
Why should you re-finance your home mortgage?
There are several reasons this can be a wise step to take.
First, you can reduce the interest rate (and, thus, interest costs) by financing at a lower rate. This is a primary reason for re-financing. Depending on the circumstances, you can save a lot of money!
Another reason is to extend the repayment time and, thus, reduce the monthly mortgage payment. This increases your cash flow. That money can then be used to pay off high-interest debt (credit cards, etc.).
A third reason for re-financing is to reduce on your part by changing from a variable-rate to a fixed-rate loan. This frees you up from the sometimes expensive interest rate/payment fluctuations that can occur in a volatile real estate market.
Finally, if you are an investment- or business-minded home owner, you can re-finance in order to raise cash for different investments, improve overall cash flow, etc.
So, as you can see, there are a number of advantages to refinancing your home mortgage! We recommend that you carefully assess your financial needs and then choose the best re-financing option to meet those needs.
What are home mortgage refinancing points and what benefit are they to you as a home owner?
“Points” (or, sometimes, “premiums”) are a real estate industry term an upfront payment of a specified percentage of the total loan amount. Typically, each “point” is the equivalent of one (1) percent of the total loan amount.
So, for example, if a lender requires you to pay three points, then that would be three (3) percent of the total loan amount. Therefore, if the amount is $100,000, then it would add up to $3,000.
The benefit of the “points” system for you, as a home owner, is that ideally you can get a lower interest rate than if you paid fewer points or no points at all. In effect, you are paying a one-time fee upfront in order to reduce your long-term costs through a lower interest rate.
Note: You can pay the points out of the cash saved by refinancing the loan in the first place.
What is a “cash-out” refinancing of a home mortgage?
In basic terms, it is when you take out a new mortgage with a larger principal than your current mortgage.
Often, the goal of a cash-out refinancing is to get a lower interest rate and to turn your home equity into cash that you can use for various purposes. For example, you may want to use that cash for the improvement and maintenance of your home. The benefit of this approach is that it maintains the value of your home or, in a best case scenario, actually increases that value.
Cash from this sort of refinancing can also be used for debt consolidation. This can be a smart move because mortgages, in general, carry lower interest rates than credit cards. In effect, you are replacing expensive, immediate high-interest debt with less expensive, low-interest long-term debt. Even better, the interest on your new mortgage may be tax-deductible (unlike credit card interest).
Yet another use of cash-out refinancing is when you need a large amount of cash for college tuition or even large medical bills. You still get the benefit of lower interest rates and tax deductibility over other types of loans and/or credit cards.
You can also consider a home equity loan or line of credit instead of a cash-out refinancing when current interest rates are higher than your existing mortgage or if you do not plan to be in your home for much longer.
What are some tips to help you to decide if you should refinance my mortgage?
The following common-sense guidelines will help you make an objective decision:
Tip 1: If you do not plan on keeping the house for very long, then refinancing is likely not in your best interests.
Tip 2: Unless you are getting a lower interest rate, refinancing your home may cost you more money in the long run and may require you to pay higher monthly payments.
Tip 3: If you have a mortgage (or, especially, an adjustable rate mortgage), keep a close eye on mortgage rates. If you can get a lower, fixed rate by refinancing, you may be able to save thousands of dollars over the life of that refinance loan.
Tip 4: An enduring myth says that you should not refinance your mortgage unless the interest rate is a minimum of two points less than the current loan. This is not always true because there may be other benefits to refinancing.
Tip 5: If you are paying private mortgage insurance on your current mortgage, then refinancing may permit you to cut this unnecessary expense from your budget.
Tip 6: With refinancing, keep a close eye on the closing costs. They can cut into the amount of money you will save through the refinancing process.
If you want more information on refinancing your home or even a free no-obligations rate quote, contact me today!