Because the real estate market constantly fluctuates, causing interest rates to frequently rise and fall, most homeowners at some point begin to consider the option of a refinance. Refinancing a home mortgage can be a great financial move because it can help you save thousands. However, not every homeowner is in a situation where this is possible. FHA home refinance calculators can help you determine whether or not you will be able to save money with a refinance. In addition to this, there are a few other factors that should be considered before the decision is made.
Home Mortgage Improvements
When considering whether or not a refinance is the best choice, it’s wise to look at the reasons for the refinance, or what it is you’re hoping to get out of it. If the refinance doesn’t help you with this goal, you may want to hold off.
Most of the time a home mortgage is refinanced to reduce the monthly payment and/or the interest rate. People are looking to free up a little extra cash each month – shaving two hundred dollars off the mortgage becomes pretty tempting. So the first thing that needs to be looked at is whether or not you will actually be able to alter your mortgage payment without putting yourself in a deeper financial hole. FHA home refinance calculators are a good resource for plugging in some numbers to see if you will be able to reduce this payment.
The second mortgage improvement people are looking for is an improvement on their interest rate. When interest rates drop, people naturally want a refinance to take advantage of the change. Lower interest rates mean less money paid out over the life of the loan, and, of course, lower interest payments. This is very tempting! However, just because the interest rates have dropped doesn’t mean all homeowners will qualify. This will depend largely on the credit and financial situations. If there are any blights on the financial footprint, it’s not a bad idea to clean some of that up before the loan officer is hired.
Cashing out the equity is also a common move for homeowners. That equity can then be used for more investments or to improve the existing home. A word of caution: taking the money for investments can pay off, taking the money for large purchases such as a boat or ATV’s will just increase the debt without offering any financial benefit.
FHA Home Refinance Calculator Shedding Light on the Details
The reasons mentioned above are the most common reasons people refinance their homes, and they are good reasons. That being said, there are times when something looks good initially but really isn’t good in the long run. These are the details all homeowners need to be aware of.
When you use an FHA home refinance calculator it shows you the estimated changes you’ll experience in your financial situation. You can plug in different interest rates and various loan terms, such as 30 years or 15 year, and it will give you a couple of different calculations. The calculations you really need to pay attention to are the mortgage payment, the interest payment, the amount saved monthly, and the amount saved over the life of the loan (this is the most important one).
Many people are able to refinance their loan and pay a smaller mortgage payment and sometimes even a reduced interest rate. This looks good up front, but oftentimes the life of the loan is extended and in the long run the homeowner actually ends up paying more than he would have originally. Keep in mind that this is not always the case, but it can happen and as a homeowner this is something you’d be wise to watch for. Those last numbers shown – the amount saved in interest and the amount saved over the life of the loan – are going to be the numbers that tell you whether or not this refinance is going to help you. If the numbers show an increase in debt, you’ll want to rethink the refinance or talk to the loan officer about different options.
A home is an investment as well as a place to put down some roots. If you play your cards right this investment can really pay off. Sometimes the card that needs to be played is a refinance, other times it isn’t, but it’s definitely something that can and should be considered when it comes to making your investment work for you.