Archive for April 30th, 2011

What to Consider in Home Refinancing

Because of the current economic challenges, many families today are opting for home refinancing. Otherwise, they will be losing their homes. Home refinancing lowers your monthly mortgage payments and extends your payment terms.

But, it is charged a high interest rate. It also entails an application for a secured loan that uses you home as collateral. Thus, if you cannot pay your loan, the lending agency has the right to pull out your home. Despite the disadvantages of home refinancing, it is still the friendliest deal that people can get to save their homes.

One way to refinance is by converting an ARM to a fixed rate loan. This is used in investment properties especially homes that are taken from a portfolio lender or someone who does not sell the mortgage. Lenders allow ARMs to finance the entire amount of the property’s improved value. People who go for this type of refinancing usually get a 5 year ARM and convert it to a 30 year ARM before the five years expire.

Rate reduction in refinancing helps lower mortgage payments. The only doubt on refinancing is whether the cost is worth the reduced amounts of payment. A borrower must think about the time it will take for the mortgage to recover its costs. Different advice has been offered about the estimated recovery period.

However, this is a case to case basis. A homeowner should think about the length of time he or she plans to keep their house. Some borrowers want a longer recovery period if they do not plan to sell the house soon. A long term borrower who thinks that the low levels at the moment will not stay may consider refinancing at the soonest possible time even if this means that the savings are not as big as expected.