Refinancing is becoming increasingly popular among lenders these days. Not only is it less risky for a lender, but it may even has the potential to bring in more money. Compared to loan modifications or other option, refinancing carries less stigma and is often the first option of choice. However, there are a few important aspects that should be considered.
Rates And Terms
People pursue refinancing for one reason: to save money. Whether attempting to lower monthly payments or save thousands in interest over the long haul, refinancing can be a great way to do both. However, the important thing to consider before applying is to know whether your goals are long term or short term.
For example, consider the interest rate. Lowering the interest rate on a loan by even a half a percent can save thousands of dollars in the long run, but is not likely to lower the monthly payment by any significant amount. Lowering the interest rate by two or more percent is likely to significantly reduce the monthly payment required on the mortgage, as well as produce considerable long term savings.
When changing the loan term of the mortgage, one can either increase or decrease the life of the loan. Increasing the loan term is great for lowering monthly payments, but will also increase the total amount of interest paid on the loan in the end. On the other hand, decreasing the loan term will save in interest payments, but will come with a higher monthly payment.