Refinance Home Mortgage Loans

Is it a good time for me to refinance my home mortgage loan?

Knowing when it’s time to refinance isn’t an exact science. There are many factors you’ll want to look at before deciding, including:

  • How long do you plan to stay in your home?
  • How much lower is the new interest rate?
  • Will you be able to switch from a variable to a fixed-interest rate?
  • Will you be able to shorten the repayment terms of the loan?
  • What will the closing costs be?
  • How much equity do you have in your home?
  • Are you planning to take cash out when you refinance?
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Your answers can help you decide if refinancing makes sense. A number of these variables work together to tip the scale in one direction or the other.

If you plan to stay in your home for a long time and are worried about what will happen to your variable rate mortgage, refinancing to a lower, fixed-interest rate will bring security and peace of mind. 

You’ll need to decide if the long-term benefits of refinancing outweigh your short-term costs. You’ll want to look at how long it will take you to recoup the costs of refinancing. 

What is the difference between interest rate and annual percentage rate (APR)?

The interest rate is a straightforward percentage rate used to calculate how much you will pay for borrowing money.

The annual percentage rate (APR) adjusts the interest rate to include the other fees associated with a loan. Charges reflected in the APR include estimated closing costs, miscellaneous fees and mortgage insurance (if required).

Be aware that APRs aren’t always 100% accurate because they are based on estimated closing costs and lenders are permitted to round off by up to a quarter of a percent.

Should I consider a cash out refinancing to pay for home renovations?

Taking cash out can be tempting. Especially if you plan to use it for home improvement. You’ll want to consider the financial pros and cons as they relate to your status.

Factor current and expected future appraised value of your home, the amount of your new monthly payment, and the length of your new loan. You should also consider how much equity you currently have in the home and how long you plan to stay in it before making a decision.

The real value of a home renovation can’t always be measured in dollars and cents. The added value or pleasure you derive from the newly remodeled space should also be considered. This can help offset the fact that you may not recoup every dollar you put into remodeling your home when you sell.

Should I take cash out of my home to pay off my car loan?

It may seem smart to pay off a large car loan with money taken from your home. In some cases, it is. This is particularly true when:

• You can deduct your mortgage interest from your taxes
• Your after-tax interest rate on your mortgage is less than what you are paying on your car loan
• The car loan doesn’t have a pre-payment penalty
• Doing so won’t cause you to pay for private mortgage insurance (PMI) on your new loan

But, you need to consider if you want to spread out payments on that car loan over the next 15 or 30 years. This will negate the short-term savings associated with lower interest rates and will lock you into paying for that vehicle well beyond its functional life.

The best way to evaluate whether or not to refinance your home mortgage loan is to consider the refinance on its own. Does it make sense to refinance your home based on lower interest rates or shorter repayment terms? If this is the case and the above criteria are met, it is probably a good financial move. Give San Diego Mortgage & Realty a call for further information: (858) 487-2208.