Should I Refinance?

Is Refinancing a Good Idea?

Under normal circumstances, we would like to purchase everything with cash and not get into the complexities of credit. However, the world of finance doesn’t work like that and you have to deal with credit at some point or the other. You have to know about the market trends so that you can take advantage when interest rates are low by making lucrative investments that give good returns.

Refinance Loan or Line of Credit?

Line of credit is a fixed amount that is advanced by a financial institution and you can borrow as much of the set amount as you wish to, at a given time. The terms of payback are decided before and depend upon the unpaid balance you have borrowed and the interest rate. When you clear the amount partially or in full, you can borrow once again while keeping within the limit set at the time of the loan.

A refinance loan is after you refinance your home mortgage loan to lower your interest rates or get cash in return. The amount of money you get is based on the present price of the home compared to the sum you have borrowed.

How to determine which is suitable

Before making up your mind about which one works out best for you, consider these questions:

  • What is the amount you have to borrow?
  • How much time is needed to pay it back?

If you need a sum that is comparatively lower and you plan to pay it back as soon as possible, say in less than a year, you should go for a home equity line of credit. These loans depend upon the adjustable nature of mortgage rates and the standard rate as pre-set by the Federal Reserve. Monthly payments become easier since you just have to pay interest on the unpaid balance. Borrowing a certain part of the credit line ensures the payments go down further with the rest of the line of credit still accessible without any interest. Moreover, you can bypass the closing costs that are applicable in the case of a cash back mortgage refinance, so you get to save quite a bit of money! The lending institutions usually lower the interest rate when it is adjustable.

If your mortgage loan comes with a lower interest rate, it is best not refinance it. You should get a home equity line of credit in such cases. With a higher interest rate, you should find out if lower rates are available – if so, then a cash back refinance mortgage loan is a good alternative. Remember that closing costs have to be considered after refinancing the mortgage loan.

Now that you have viewed the situation from both angles, there are many calculators available for accurate computations that will help you make an informed decision.