The question that may be playing in your mind right now could be, “to own or to rent?” It is a concern for many people which choice would make the most financial sense. And most people would love to make right and sound choices. With the crumbling housing market in recent years, renting may be a better choice. But the latest data from Moody’s Analytics has shown that rentals have increased only by about 3% in 2010.
On the other hand, prices of houses are expected to fall and some economists expect a fall of 15% to 30% this year. This would make houses more affordable and renting less favorable. It will put renting and owning on a more equal footing. However, this may not be good for homeowners as the value of their most prized asset continues to drop. It could also create new problems for those who are looking to refinance their first mortgage or refinance second mortgage. Refinance seems to be quite popular these days due to the current low interest rates.
Homeowners at the lower end who want to refinance may face more challenges than those who are at the mid to upper levels. These homeowners tend to be first-time homebuyers who put up only minimal down payment when they first bought the house. Many may have owned their houses for only a short period of time and the sliding house prices could have wiped out their equity.
Those at the mid to upper end tend to be repeat homebuyers who would have more time to build more equity. They may also have better credit and financial resources, which makes it easier for them to qualify. This could be good news for those who really need to refinance to get some upfront cash for debt repayment. If you belong to this category, refinance would be beneficial if the interest on your debts is higher than the interest on your refinance loan. If you have both a first and second mortgage, you may choose to refinance first mortgage, refinance second mortgageor both together.
In addition to paying off your debts, the lump sum cash received from refinancing may also be useful for house renovation, setting up an emergency fund, paying for unexpected hospital bills, house repairs and car repairs. Whatever the reason for a cash-out refinance, it may be advisable to weigh all options carefully and consider all the pros and cons before signing on the dotted line.
Mortgage refinancing may be helpful in the area of cost reduction. If your new mortgage comes with a much lower interest rate than your first or second mortgage, it will help you save some money and lower your monthly repayments. However, you may want to factor into your calculations the closing costs which could reduce your potential savings. A lower monthly repayment may be a big help to those who are facing foreclosure due to default on payments. Refinancing can make it more affordable for them to meet their monthly obligations and help them to stay in their homes.
There are various types of mortgages in the market and you may have opted for adjustable rate mortgage (ARM) when you first took your first or second mortgage. Over a period of time you may have felt that it is not quite secure to have this type of mortgage as the interest rates fluctuate according to the market rate. What if the interest rates were to rise overnight or in the near future? It will put a dent in your monthly budget especially if you have a very tight one. With the current low rates, it may be wise to refinance to a fixed rate mortgage to lock in the rates. No more worries about what will happen to the rates in the future.
Refinance seems to have many benefits and things look quite rosy now with the sliding interest rate. You may have the urge to jump on the bandwagon and refinance your home. However, there are many things to consider before you rush into a decision and only you would know what is best for you and your family.