The financial crisis, along with the falling housing market, has caused many individuals to struggle with debt. Many families are opting to refinance their homes in order to save money and pull themselves out of a financial black hole.
Unfortunately, refinancing your home can be a risky move, especially if you are unfamiliar with the process, which can be quite complicated. As long as you thoroughly educate yourself and avoid making common financial mistakes, remortgaging your house can be extremely beneficial.
When refinancing your home, avoid making hasty decisions. Take the time to make a plan and to review all of your options. Websites like moneysupermarket.com can help you compare the rates of various refinancing options.
Do not remortgage your home without thinking about your motives. Are you trying to greatly reduce your monthly payments right now so that you can avoid going into debt elsewhere or are you trying to reduce the cost of your home in the long run?
Figuring out your goal is crucial. What you are trying to accomplish by refinancing your home will affect which type of refinancing option you should choose.
There are two main methods that most people use to refinance their homes. The first is to refinance once or twice by resetting the thirty-year payment period and lowering the interest rate. This causes the monthly payments to drop significantly, but it takes a bit longer to pay off the house.
The second method is to reduce the duration of time it will take to pay off your home once or twice. For example, you could reduce the duration by three years each time.
This method will lower your payments by just a little each month, but the total cost of your house will drop by tens of thousands of dollars.
The second option saves you more money overall, even though you save less per month. If you want to stay out of debt in the long run, your best choice is probably to choose option two.
If you still need to save more money per month, supplement your new mortgage by lowering the rest of your bills. Research and compare different companies to save on utility bills, insurance, travel and more.
After you have chosen the method of refinancing that suits your goals, do not forget to make a plan. Many people refinance their home with a vague intention of refinancing again a few years later, but they never get around to it.
If you do not make a plan and stick to it, you will not save as much money as you could be saving. Remortgaging becomes pointless if you only save ten dollars a month and the cost of your home is only lowered by a couple of thousand dollars.
Do not limit yourself to refinancing with your original bank. You should shop around at different companies to make sure you are getting a good deal.
Do not try to do the math yourself. If you make a small mathematical error, you could end up signing a contract that causes you to lose money. Utilize free online mortgage calculators and other tools that will help you understand your payments.
Avoid becoming overwhelmed by taking things one step at a time. Explore your options, educate yourself, figure out your goal, create a plan and stick to it. As long as you are thorough in your decision making, you can feel confident that you have made the right choice.
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