When looking back at my life, I can remember the good times as well as the bad ones that impacted my life to where I am now. The morals instilled upon me from my parents and other family members while fighting my own body in order not to be confined permanently in a wheelchair. While these things I mentioned impacted greatly on my life, so did other passions I enjoyed taking a part of. One specifically was collecting comic books and graphic novels dealing with the exploits of superheroes as they tried to defend the innocent from the schemes of villains that wanted to infect society with their evil. These recorded adventures did have an impact on my personality; especially those adventures of the dark knight of Gotham City. Batman was, at least to me, the most believable in that he was a mortal man that had revenge on his mind against not only who was responsible in killing his parents but those who would take advantage of the innocent. Now your average man would have a difficult task in achieving this but add to the mix that he would have access to millions, even billions of dollars and you have a recipe for a plausible hero. One villain that comes to mind is a character known as Two-Face. Without spending time describing what happened to him as well as why he came up with his new name, the important thing to note was before committing a villainous act, he would flip a coin that had two faces; heads without being scared would mean he would walk away, while the other side would be scared, so the crime would be committed.
This stuck with me in that life as a choice of good or bad, pros and cons for every decision made. When it comes to refinancing, it is the same as where one type of new mortgage would be positive but another would prove harmful. The question would be to find a loan that would be the most beneficial. In deciding when to refinance, it is important to try and lock down the lowest rate possible but is not so easy to accomplish. With that in mind, let’s look at different refinances to see the pros and cons of each. Then, a homeowner will flip that coin where hopefully, it won’t land on the scared side.
Figuring out when to refinance can prove to be Difficult
There are different programs available to choose from so buyers will have plenty of options to pick from. Unfortunately, this means the borrower needs to be aware of how each one can have a different affect on the refinance rate. Though homeowners would like to think it is easy to find a refinance program that can have an upside without a downside, this is not so easy to accomplish. With that said, let’s look at a few examples of programs offered and how their influence will show when to refinance.
How is the Equity of a home affected by these programs?
In an adjustable-rate mortgage, the new mortgage usually provides a low rate of interest so the first monthly payments will be much less than what a fixed-rate refinance basically offers. This sounds great in the beginning to homeowners since they will save money if the rates go higher during the initial stages. For example, if the new mortgage stipulates a 7/1 ratio, the seven represents a 7-year introductory period where the rate of interest stays fixed. The one represents the rate of interest that is subjected to change after each year expires once the agreed amount that was offered has passed. This type of a refinance has great benefits if the mortgagee is planning on paying off the new mortgage in a short time period; however, the longer the refinance is the more expensive it will get to pay off as the original rate will be subjected to higher rates. Also, if home values begin to decline the less the equity will be for the home. While this program has advantages to it, one must consider the disadvantages to it as well.
Another program is known as a fixed-rate mortgage. While the interest rate and payment made each month will remain the same throughout the mortgage, this form of a mortgage is usually more common as homeowners like how straightforward it is as well as protected from surprises such as increased rates of interest. Obviously, this is practical for a mortgagee who’s into staying for the long-term of the loan and feels this will be their home for generations to come. However, the down-side is not good for anyone seeking for investment purposes. Being that you are paying only interest the value of the home will not increase. Once the period of paying only interest expires and just owing the original amount that was borrowed, this could add to the difficulty of trying to make money off of selling your home or trying to refinance it. This venture should be thought through before considering taking out this type of a refinance.
Just looking at the two examples I have already discussed, one common element is the fact that each have their pros and cons which should come as no surprise. Pretty much every decision a person makes throughout their lives has their good and bad points. Refinancing a new mortgage is no stranger to this as each individual as well as their tastes are usually never the same. Take, for example, a rate and term refinance compared to a cash-out refinance. Both share the same goal of taking out a new mortgage in order to have access to new cash in order to resolve a financial situation. Yet, the first deals with focusing on lowering the interest and/or changing the term of the original mortgage. This offers no immediate availability of money but does so down the line. As for the cash-out option, the goal is to acquire money on the spot to use for whatever the new finances needs to accomplish. Unfortunately, this will not benefit a borrower later on if there is a need for lowering payments each month or changing the time period as the first would.
By now, you can understand that while one type of loan can benefit a homeowner, another borrower could find this loan to be more harmful than good. In order to discover the right time when to refinance, remember to look at each program to weigh the good with the bad. Only then can you make a valid choice to acquire that in which you seek. Then again, you can simply flip a coin to decide your fate; just make sure it doesn’t land on the scared side.