Monday, November 17, 2008

When to Refinance: 2nd Post

When Financial Situations Change

A change in the homeowner’s financial situation can also warrant investigation into the process of re-financing. A homeowner may find himself making considerably more money due to a change in jobs or considerably less money due to a lay off or a
change in careers. In either case the homeowner should investigate the possibility of re-financing. The homeowner may find an increase in pay may allow them to obtain a lower interest rate.

Alternately a homeowner who loses their job or takes a pay cut as a result of a change in careers may hope to refinance and consolidate their debt. This may result in the homeowner paying more because some debts are drawn out over a longer period of time but it can result in a lower monthly payment for the homeowner which may be advantageous at this juncture of his life.

When Interest Rates Drop

Interest rates dropping is the one signal that sends many homeowners rushing to their lenders to discuss the possibility of re-financing their home. Lower interest rates are certainly appealing because they can result in an overall savings over the course of the loan but homeowners should also realize that every time the interest rates drop, a re-finance of the home is not warranted. The caveat to re-financing to take advantage of lower interest rates is that the homeowner should carefully evaluate the situation to ensure the closing costs associated with re-financing do not exceed the overall savings benefit gained from obtaining a lower interest rate. This is significant because if the cost of re-financing is higher than the savings in interest, the homeowner does not benefit from re-financing and may actually lose money in the process.

The mathematics associated with determining whether or not there is an actual savings is not overly complicated but there is the possibility that the homeowner will make mistakes in these types of calculations. Fortunately there are a number of
calculators available on the Internet which can help homeowners to determine whether or not re-financing is worthwhile.

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