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Fri, 29 Feb 2008 15:46:00

How to choose the right mortgage refinance loan

Mortgage News from Quicken Loans

According to the Mortgage Bankers Association of America, Americans refinance their home mortgage loans every four years.

But how do Americans know it's time to refinance?

How do they know which refinance loan to choose?

You can refinance your mortgage to accomplish a number of things:

  1. Refinance to a lower rate (and lower payment) - often dictated by market conditions
  2. You have an ARM or balloon mortgage that needs to be refinanced before anything changes
  3. Refinance to get cash out for a number of things - consolidating debt, home improvement or anything else

Keep in mind that sometimes looking for a lower rate and looking for a lower payment could be two different things. The market dictates rates - if you got your loan when rates were higher than they currently are, refinancing to a lower rate will give you a lower payment and help you to pay less in interest in the long run. If you simply need a lower payment, sometimes refinancing to an interest-only loan can offer you the extra monthly cash flow you need.

If you've got significant debt outside your mortgage, a refinance could turn the inefficient debt into another tax deduction! Credit cards and car loans don't share this benefit - consolidating them with your mortgage can reap you huge savings on a monthly basis and the interest paid could be tax deductible. Doing a cash-out refinance will give you one low, monthly payment into an investment that will appreciate over time - your home.

The other thing you need to assess is your goals for your home when you're thinking of refinancing. Do you plan on selling soon? Are you planning any life changing events in the next 3-5 years - children, college or buying more real estate? Refinancing to the lower rates of a 3, 5, or 7-year hybrid ARM could save you money if you think you will be out of the mortgage within that time period.

Weigh your refinance options to find which one makes the most sense - a good mortgage lender should be able to help you compare refinance loans side by side. And, also never accept any pre-payment penalties with your refinance loan.

This article is reprinted by permission from Quicken Loans © 2008 Quicken Loans Inc. All rights reserved.

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