There are many questions that you’ll ask when you decide to refinance. How long is the process? Do I have to go through the same lender? FHA or conventional? Will this benefit me financially? What is the point of the FHA refinance loan calculator? Won’t my lender tell me what I need to know? You’ll probably have more questions, but that’s a start. However, the most important question you’ll want to ask is why you should refinance and will it be worth it? Most of the time people refinance hoping to improve their financial situation, so it’s a valid question to ask. So here are a few of the common reasons people refinance and why you may want to consider it with your own home mortgage.
Adjusting Your Home Mortgage
When you refinance you look at the terms of your original loan and compare it with new loans until you find a loan that better suits your needs. The best time to refinance is when doing so will reduce your interest rate, shorten the loan term, lower your monthly payment, lower the overall cost of the loan, switch you into a fixed loan, or give you the option to cash out your equity and use it for other purposes. In many cases you’ll experience multiple benefits, not just one, because they all work together in a loan.
Oftentimes homeowners get locked into an interest rate that is low for the time, only to find a year or two later that the rates have dropped and are now more enticing. When you secure a refinance at a rate that is one percent less than your current rate, you will save thousands in interest that you no longer have to pay. You may find that when you drop your interest rate, the monthly mortgage payment drops as well. This is a great added bonus.
Reducing your interest rate can save you thousands and when you reduce the rate and combine it with a shorter loan term, you may be able to save even more. Most homeowners are locked into a thirty year loan at a fairly low interest rate. When you get to a point financially where you can switch this from a thirty to a fifteen or twenty year loan, you can often save thousands, especially if the interest drops as well. Switching to a shorter term will increase your mortgage payment, but by paying off the loan five, ten, or fifteen years shorter you save yourself five, ten, or fifteen years of interest payments.
Possibly the best reason to refinance is when you were given an ARM loan when you acquired your home and now you are looking to switch to a fixed mortgage. The adjustable rate mortgage is extremely helpful when getting the home because the interest rates are often lower initially. However, when they start adjusting about five years into the loan, you can experience a negative side effect in a mortgage payment that jumps hundreds of dollars. The interest rate on an adjustable mortgage changes with the current market rates and it’s not uncommon for them to rise. Switching to a fixed mortgage will lock you in at the current rates today, leaving you free to worry about other aspects of your future instead of your monthly mortgage payment.
Last but not least is the cash out refinance option. It’s worth noting here that most financial experts don’t recommend cashing out the equity in your home unless you plan to roll it into other investments. This is because the equity in your home is an investment and if you use it as play money, all you are doing is increasing your debt. However, when you see a good investment and you have equity in your home, the cash out refinance can be a great way to add to your investment portfolio.
Where the FHA Refinance Loan Calculator Comes In
The reasons mentioned above are the most commons reasons people consider a refinance, but unless you really know the financial impact of the refinance you can never know if you are making the right choice. Yes, a lower interest rate looks fantastic on paper but when you start calculating, you may discover that it doesn’t save you money. In fact, you can sometimes spend more money when you adjust the rate. This is where the FHA refinance loan calculator comes in handy. With these calculators you can plug in all of the numbers of your existing loan and compare it to the loans you are considering. It will calculate everything for you and show you whether or not the refinance will save you money or cost you money. FHA refinance loan calculators compare interest rates, loan terms, fees, and other variables that can and will affect your loan. When refinancing it is always wise to know as much as you can about the effects of the term prior to signing on the dotted line.
As with any financial decision, work closely with the experts in the field to ensure that you get a loan that works for you. When working alone you are far more likely to make a costly mistake than you would if you had an expert at your side invested in your best interest.