| Choosing to refinance your mortgage can be a very | | | | increase the term of your loan or interest rates have |
| challenging task. While the prospect of a lower rate, | | | | fallen, this strategy may allow your monthly payment |
| lower monthly payment, or pulling equity out of your | | | | to remain the same, though you need to remember |
| home to use for other purposes may sound attractive, | | | | that financing additional principal inevitably means you |
| there are a number of factors a homeowner should | | | | will increase your overall mortgage debt. There's no |
| consider when deciding whether the time is right. | | | | free lunch! |
| The following are five factors to consider when | | | | 3. You Are Still in the Early Years of Your Mortgage |
| making this decision. | | | | Loan In the early years of your payment schedule, |
| 1. Low Interest Rates The most obvious factor in | | | | most of your payment is going towards principal; great |
| whether to refinance is interest rates. Fortunately, | | | | for a tax deduction, but not so great for paying off |
| mortgage rates in Texas tend to be lower than in | | | | your loan anytime soon! However, this is when it |
| other parts of the country due to the perceived lower | | | | makes the most sense to refinance. When you are in |
| risk of our housing market. If mortgage rates have | | | | the later stages of your loan, most of your payment |
| decreased since your last loan was originated, or if | | | | goes towards principal, thus minimizing the impact of a |
| fixed rates are relatively low and you are currently in | | | | reduced interest rate. Typically, if you are just seeking |
| an adjustable rate mortgage, refinancing might make | | | | to reduce the rate on your loan, you will likely fare best |
| sense. In the case of a conversion from an adjustable | | | | if you refinance in the first ten years of a 30 year |
| rate loan to a fixed rate loan, your interest rate savings | | | | mortgage. Alternatively, if you are considering taking |
| may not need to be that significant if your primary | | | | cash out of your home when your first mortgage |
| objective is to remove the risk of rising interest rates | | | | balance is low, you may be better off taking out a |
| from your future budget. In a low rate environment, | | | | home equity line of credit or a second mortgage. As |
| you might have the opportunity to lower your monthly | | | | we stated earlier, your ability to take cash-out in a |
| payment while keeping the term of your mortgage | | | | refinance may be limited due to state law. |
| approximately the same. You may also consider | | | | 4. You Plan to Remain in Your House In order to |
| refinancing the term of your mortgage to keep your | | | | maximize the value of refinancing, you need to remain |
| payment consistent, but allowing yourself to pay off | | | | in your home long enough for your interest savings to |
| the loan sooner. With any of these options, your | | | | offset your closing costs. For example, if refinancing |
| interest savings along over the term of your mortgage | | | | your mortgage will cost $3,000, and your monthly |
| loan can easily amount to thousands of dollars. | | | | payment will be reduced by $200, you need only |
| 2. Increased Equity in Your Home Unlike many areas | | | | remain in your house for 15 months to break even. On |
| of the country, many residents of Texas, and | | | | the other hand, if your payment is only going down $75 |
| specifically South Texas communities like Spring, | | | | per month, it will take you 40 months. While we all think |
| Tomball, The Woodlands, and Houston have | | | | we'll never move, evidence suggests we will. The |
| experienced increases in the value of their home since | | | | average homeowner moves approximately every |
| it was purchased due to the strong local economy | | | | seven years, so you should keep this in mind when |
| which continued to thrive during the energy crisis of | | | | making your decision. |
| 2007-08. Furthermore, home affordability in Texas | | | | 5. You Have a Large Mortgage Balance While many |
| remains high relative to the rest of the U.S., meaning | | | | experts might say it only makes sense to refinance if |
| there will likely be a more ready source of buyers than | | | | you can lower your rate by 1.5-2%, this is not always |
| in markets like Las Vegas or Southern California. | | | | the case. The larger your mortgage balance, the |
| Unfortunately, unlike your brokerage account, you | | | | greater the overall impact of a reduced mortgage rate. |
| cannot easily access this equity unless you sell your | | | | Whereas a 1% reduction in rate may not offset the |
| home. An alternative would be to pursue a cashout | | | | closing costs on a $100,000 loan, it may make |
| refinance where you would refinance for a higher | | | | economic sense for a $400,000 loan. Once again, you |
| amount than your current loan balance. Since the | | | | must weigh the time to recoup the closing costs you |
| interest rate on a first mortgage is likely lower than on | | | | will incur with your overall interest rate savings. |
| credit card or other unsecured debt, and likely tax | | | | Your mortgage broker can assist in running through |
| deductible, paying off other debt in a cash out | | | | different scenarios with you to determining if |
| refinance can make good financial sense. Keep in mind | | | | refinancing makes sense, and which program and |
| there are specific laws in Texas limiting cash-out | | | | lender is best suited for your needs. You can also find |
| refinances to 80% of a home's value, so your ability to | | | | various refinancing calculators on the web that can |
| pursue this strategy will be limited by the amount of | | | | assist with your research. |
| equity in your home. In cases where you either | | | | |