There are many solid reasons to remortgage home
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By Scott Sheldon  March 28, 2013 04:20 pm

Take heed, mortgage rates are still favorable, even if you took out a loan as recently as last year. When it comes to refinancing, borrowers must have two components: loan makes sense plus net tangible benefit.
Reasons to remortgage your home:
• Lowering or getting out of monthly mortgage insurance: Refinancing into a new loan with no monthly mortgage insurance can easily save a borrower upwards of $150 per month, maybe more. As home prices have risen, getting closer to the holy grail of 20 percent equity becomes a realistic way to get rid of lender insurance. For borrowers who took out FHA Loans between 2010 through 2011, remortgaging into a conventional mortgage, even with lender mortgage insurance, is still a viable choice as the rate and insurance benefit is substantially lower than the mortgage insurance premiums imposed by the FHA. Beginning in April, FHA insurance premiums are slated to rise again, making conventional choices more attractive.

• Fixed-rate loan: For homeowners coming out of an adjustable-rate mortgage, moving into a fixed-rate program will likely increase the payment as the rate could be upwards of .75 percent higher on average. However, comparing the prospect of what future rates will do to the net tangible benefit attainable by moving into a fixed rate sooner could be a wiser option.

• Paying mortgage balance off sooner: Taking on the accelerated payment of a 15-year fixed rate isn’t as challenging as it used to be, as managing the house payment over time becomes easier with a lower interest rate generating a lower payment. By moving from a 30-year mortgage to a 15-year mortgage, a homeowner can cut 15 years off the time it takes to pay off the house while at the same time saving 15 years worth of interest.

• Cashing in equity: This involves increasing the amount borrowed for the purposes of paying off debt, doing home improvement, replenishing liquidity/assets, perhaps in conjunction with a personal financial plan. This choice should be considered more carefully and no doubt will be more scrutinized by the lender (for net tangible benefit delineation) to minimize future debt accumulation.

• Lower mortgage payment: Reducing the payment requires careful consideration of determining savings generated by refinancing i.e. lower rate and longer term with the initial investment required to complete the transaction. Perform a breakeven analysis by taking the monthly savings divided by the closing costs. A more strategic return on the investment approach would be taking the annual savings generated by the refinance divided into the closing costs (initial investment). In most cases, the return on investment will be much greater when compared to the returns offered by a bank account.

Real world refinancing advice
The old school mantra on refinancing was “unless the  interest rate is a full one percent point or lower, then refinancing simply didn’t make sense.” That school of thought is a thing of the past, as the movement of mortgage bonds and the normalcy of mortgage insurance have changed in recent years.

Scott Sheldon is a local mortgage lender, with over six years of experience helping people purchase and refinance primary residences, second homes and investment properties. Visit him at www.sonomacountymortgages.com.

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