How can you benefit from a refinance mortgage? There are a few different reasons to refinance, including several ways to save money, but one of the main things to consider
is how long you may keep your home, because the
amount of savings from refinancing a home loan
depending on the mortgage program and
A good way to
save money if you plan to stay in your home for a short time, is
to use a
zero point refinance loan, or a zero cost refinance, because if you move
or refinance your mortgage later, you won't waste
money having to pay loan fees again.
Another potential money-saving refinancing option is a 3 year ARM or a 5 year ARM refinance,
which provides a lower
fixed rate for the first 3 years or 5 years of the home loan.
with a higher debt ratio, or if you have lower credit
see FHA loans.
Short term refinance mortgage loans include a 6 month, or 1
year ARM. To attract borrowers, lenders provide adjustable
loan rates that start lower than fixed refinance rates. Every 6 months or 1 year, the rate is adjusted based on the index
plus the margin, subject to periodic and lifetime rate
caps. The index can be based on the 1 year T-Bill,
Cost of Funds, Treasury Average, or LIBOR. The margin is a fixed
number set by the lender, which can range from 2.25 to 3.00.
If you want a cash out refinance mortgage, but you currently have a
low interest rate, you may want to consider using a home
equity loan or a second
mortgage. If you are looking for lower payments, a 30 year fixed rate refinance is a good choice. If your goal is to keep your house until it is free
and clear, you may want to consider a 15 year fixed refinance.
When you compare
a 15 year term, the monthly payments will be higher, but the principal
reduction is accelerated, so you can drastically
reduce the amount of interest paid for a
For example, the monthly payment for a $200,000
loan, for a 15
year term would be almost $500 per month
more than a 30 year term, but it would also save about $128,000
in interest payments. Technically, you could achieve similar
results on a 30 year refinance mortgage by sending an
additional amount each month to be applied to the
principal balance, if you have the discipline.