So Why Refinance a Home or Car?
Lower Monthly Payments
In order to decrease your monthly and overall payments, it can make a lot of sense to refinance. If you only plan on living in a home for a year or two, it’s probably not worth the time or savings to refinance. In the long run however, the cost of refinancing will be paid quickly by your monthly savings.
It is vital that you calculate a break-even point. This is the point at which your savings will make up for any fees you had to pay to refinance. If you are going to stay in the home or be using the car long past this break-even point, it makes a lot of sense to refinance. If the break-even point won’t be reached before you move, there is no reason the refinance. Always seek a fixed rate mortgage when you refinance. These often offer the best rates, and they are locked in for the duration of the loan.
Avoid Balloon Payments
There are programs called ARMs that will lower your initial monthly payments. This can be attractive to those having money problems, but at the end of a 5-7 year period, if the buyer still owns the property, the entire mortgage will be due. This can be useful if you are certain you are only staying in the house for a short period of time, but dangerous if you aren’t sure of your plans. Taking out a fixed rate refinancing mortgage will help you avoid this large one-time payment at the end of a certain time span.
Get Rid of PMI
Many young people buy homes without a substantial down payment or even zero down payment. This can seem attractive at the time, but Private Mortgage Insurance, or PMI, will be required. As you increase your credit score and prove your responsibility, you can become eligible to refinance and eliminate this PMI. All of the above listed are great reasons to refinance a home or car.