Thursday, September 27, 2007 8:33 PM
Should we refinance?
When you signed up for your first mortgage, you probably thought, ?Well, that?s it, it?s all set, talk to me in 30 years.? In today?s economy, however, mortgages are a little more complicated. That?s especially so if you signed up for an adjustable rate mortgage, which have a fixed rate for a number of years (usually four or seven) and then go by the current rate. Interest rates are rising and falling constantly, and depending on which end of the cycle you started, you might be able to get a better deal now. If your term is coming up and you face higher payments, you would want to see what other deals are out there (specifically with fixed rate mortgages).
Refinancing means you set up a new mortgage to replace your old one and you pretty much only do this if the terms are more favorable. Technically, the bank pays off the balance of your existing loan and signs you up for a new one. There are closing costs involved, usually what you?d shell out if you were buying a new home, but they can be rolled into the new loan so you don?t necessarily need to drop any cash. Some people also take the opportunity to cash out a little equity when they refinance, but you can only do that if you home has gained value since you first signed a mortgage.
The key indicator for refinancing is the interest rate. There are online calculators available to help you figure out if the difference between your rate and what you could get now makes it worthwhile for you to go through the process, including what the closing costs would be.