Before I answer, I will give a piece of home mortgage advice that will sound so obvious and yet you probably haven’t even considered it:

You should only refinance if doing so benefits you financially over the long run.

Tada! Earth-shattering tidbit, right?

Well, you would be surprised just how many homeowners forgot this painfully obvious advice the last time they refinanced.

Most concentrate on getting the lowest rate possible but give no thought to the details of mortgage loans. In making the decision to refinance, it’s important to consider your whole financial picture.

There is a right way and a wrong way to do everything. Refinancing is the same.

A straight refinance to get out of an adjustable mortgage, makes sense. A straight refinance to lower your rate makes sense, too. But also consider reducing the term. Rates make little difference over the life of the loan but term makes a HUGE difference.

Homeowners normally look at the payment amount, but interest and term are much more important. Lowering your term saves you tens of thousands in interest. If you want to make a sound financial decision, stop looking only at the rate and payment.

When you are in a home you love and in a neighborhood that suits you, you may also want to consider a home equity line of credit rather than a straight refinance. You may be longing to improve your current home with an addition, redecorating , landscaping or the like. A home equity line of credit allows you to borrow against the equity in your home without touching your existing 1st lien.

A home equity loan may be just the option you need for that addition, a little remodeling, and college tuition or to consolidate debt, especially since these rates are still relatively low.

Remember, only refinance if it benefits you financially. Whether a straight refinance or an equity line of credit is the right choice for you really requires an analysis by a mortgage professional that has your best interest at heart.

That’s the right way to refinance.

This entry was posted on Wednesday, April 23rd, 2008 at 10:31 am and is filed under Housing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.