Tuesday, April 15, 2014

How Could You Save by Refinancing Your Home Mortgage?

Our homes are generally our biggest assets and they may come to our aid in many occasions. Owning a home increases your statue and it would be even nicer if you owned your home outright. However, you achieve this goal faster if you manage to save money today. Most of the time, it would be cheaper to borrow on your home equity than any other loans because of the underlying security.

A home loan is a long term commitment but that doesn’t mean you cannot replace it with a better one. This could make sense if you are still saving money after all the costs of switching taken into account. Even small savings can add up over time considering you would be paying interest for years. Here are some of the ways how refinancing a home mortgage can save you money.

Putting a Cap on Your Monthly Payments
There are many mortgages in place with adjustable interest rates that fluctuate from month to month. Low interest rates offer a great opportunity to fix your rates so that you know exactly how much you will pay each month. You will stand to lose if the rates go down even further but you will be well protected if they go up.

The main problem is that fixed rates could be slightly higher than current flexible rates. This is the price to pay for peace of mind of keeping the same monthly payments. Another option is to get a flexible mortgage with caps on rates in that rates can go up and down along the lines of underlying interest but it cannot go up more than pre-fixed ceiling rate.

Taking Advantage of Low Interest Deals
Many lenders offer special incentives for several years when you take a new home loan. Many people are attracted to those initial low monthly payments. So, it comes as a big surprise when the interest rates and monthly payments suddenly shoot up. This would be a good time to look around and see if you could find savings. A new provider is likely to offer similar incentives as well that can be used to offset the refinancing costs.

This time you should have a longer view and check carefully as to what will happen after the discounted rates end. If you are not going to go for fixed rates you should find out how wildly your rates can fluctuate. There are mortgages that are set as base rates + a certain margin of interest. For example if the base rates are 1% and the margin is 2% you pay 3% interest and this changes to 4% if the base rate goes up to 2% and vice versa.

There are many reasons why people would end up with a bad mortgage deal in the first place. One of the reasons is that you get all excited about owning a home and you overlook a few points. Another one is to have a poorer credit score at the time and can only get mortgage from certain companies. This wouldn’t be a problem if you managed to keep your payments and improved your credit score. As soon as you see a good deal you can rearrange your home loan for the better and save money

Paying Off Home Mortgage Earlier
There are many ways of saving money. Paying more towards paying off debt earlier is like putting money in the bank because you will have larger and larger equity at your home each month. Early payments can be achieved in two ways. You can either make lump sum payments as and when you have money. However, we tend to spend money before we even know it. So, if you are not confident about achieving your saving goals this way, it may be better to reduce the term of the loan by paying a bit more each month.

You don’t really need to refinance to reduce your mortgage term with some lenders. It is possible to talk to your provider and switch for a better product and reduce the term of the mortgage in the same time. While talking to other lenders don’t forget to talk to your own lender. Initially, they may not give way, but they may change their mind when they realize you are going to leave them. If they don’t you could still go with the best option for you but with another company.

How Else You Could Save Money?
The next money saving opportunity could be looking at your insurance arrangement. People achieve large savings on their home and automobile insurance every day especially when they buy both policies from the same provider. When you are getting your home loan make sure that you are not tied down for your home insurance. Both your lender and financial advisor may try to steer you toward the products they are affiliated with. Check your options carefully before making your mind.

When you can control your main outgoings you can budget better for the future. Many people go to considerable trouble to save a little money. They cut coupons, give up eating out and even leave home with a mug of coffee instead of picking their coffee on the way from their favorite vendor. However, they do nothing about possible large savings they can get with refinancing, switching home and car insurance providers.

About The Guest Author
This article is written by Joe Moore who comes from financial services background. He currently helps building an auto insurance forum called Talk Car Insurance.

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