Things to Think About Before a Houston Refinance

There are many Houston refinance options, but no matter how attractive an offer may seem on an ad, it may not always be a good idea to refinance. You need to look at all the factors before you make a decision regarding refinancing, as it can end up costing you more than you save. Below we look at a few refinancing options and when it’s a good idea to use them.

Refinancing: Fixed Rate to ARM

If interest rates have dropped significantly, yet you are still stuck with a fixed rate mortgage at a much higher rate, refinancing to an ARM may be a good option. Refinancing is also a good idea if you intend to move in under 10 years, because you will get a much better rate for the first ten years of the mortgage. The interest is often lower than market rates, meaning your initial monthly payments will be smaller.

ARM to a Fixed Rate Mortgage

If mortgage rates are rising above fixed rate mortgages then you need to consider refinancing. However, before deciding on a Houston refinance plan you need to decide how long you intend to stay in your current home. It may not make sense to refinance now, especially if you won’t have time to amortize the closing costs.

Reduce Monthly Mortgage Payments

With a good Houston refinance plan, you should be able to reduce your current monthly mortgage payments. Even a mere half- percent drop in interest can lead to a significantly lower payment, but you need to also factor in the closing costs.

If you need to lower your monthly payments, you can also extend the duration of the loan. However, you should try to avoid this option if you can, because you will only be paying more interest on the mortgage.

If you need greater flexibility, you can refinance to an interest only loan. This type of loan stipulates that the minimum payment you need to make every month is only the interest for a set period. Of course, you can also pay some of the principle back but you have the flexibility to choose how much you can afford to pay over the interest every month.

High Interest Loan Consolidation

The interest rate on a credit card is much larger than a mortgage, making refinancing your high interest loans a good idea in the long term. You will end up saving thousands of dollars by paying off your credit cards in both interest and tax deductions. This is because the interest rate on credit cards is not tax deductible whereas it may be with a home mortgage.

Using your home equity for expensive purchases may also be a better idea than using credit cards, especially since a mortgage is considered “good debt” while credit cards are “bad debt”. Of course, after the recent credit debacle maybe it’s a better option just to save up for those expensive purchases rather than risking your home.

The last few years have shown us how fragile the market really is and how quickly we can lose our property. Therefore, the best advice is only to refinance your mortgage if you really need to or if interest rate has dropped, but not to get more cash just to buy a new TV set when the old one is working just fine.