Refinancing Your Home Loan
Refinancing is a good option if prevailing interest rates are lower than your original mortgage rate. Following the recession, interest rates continue to hover near all time lows, and refinancing your older loans can be a smart move now to take advantage of the current economic conditions.
But before you decide to refinance your loan, consider a few important things. To begin with, make sure that the interest rates are significantly lower and compensate for the cost of taking a fresh loan.
Talk to your previous lender and see if the old loan will attract a penalty for premature closure. If it will, then factor this cost into your calculations.
Unless you understand market fluctuations and are aware of the current economic conditions, avoid opting for adjustable rate refinancing. But there is simply no calculation that can help you predict which way the interest rates will go. You may take the new loan now at low rates, but can end up with very high interest rates later, say when the economy recovers. It is better to stick to a fixed and predictable monthly repayment schedule that you can easily manage.
Do not be tempted by long term, low installment plans unless you can predict your financial health in long term with some certainty. It is usually better to opt for a schedule where your loan gets paid off quickly. This way you also reduce the number of years for which you will pay interest to the lender.
With some research and by comparing a few lenders, you can get attractive refinancing options and reduce your debt burden significantly.
