Guest article written by Chicago bankruptcy attorney David Chang
How To Cut Costs? Start With Refinancing Your Mortgage!
The past few years have been a challenging financial time for Americans. Every family is looking for how to cut costs out of their monthly expenses. Finding ways to save money is not always easy. Cutting coupons and turning down the thermostat are not going to yield significant monthly savings. Refinancing your home mortgage will!
The recent financial situation drastically affected home prices and values. In response to this the Federal Reserve has taken measures to keep home loan interest rates at an all time low. This has been particularly beneficial as a way to stimulate the housing market and encourage first time home buyers to get into the real estate game. For some families that are struggling with tight finances the low interest rates provide an opportunity to refinance mortgages and save big.
Today bankrate.com is reporting the interest rate on a 30 year fixed mortgage to be 3.81%. Refinancing your loan if your current rate is around 6% can mean saving hundreds of dollars a month. For some families this can mean the difference between struggling to pay bills each month and living comfortably.
Those who are comfortable making their current mortgage payments should consider a refinance too. If you can refinance your mortgage and lower your monthly payment but continue to pay the previous mortgage payment amount, you can drastically reduce the interest paid on the life of your loan. For example, if your current mortgage payment is $1,400 and you refinance it to $1,200 per month you should continue to pay the $1,400 if you can afford it and pay down your debt faster and pay less interest overtime.
Refinancing can be a great solution for many people. However inChicago, bankruptcy lawyers have also seen that there are some drawbacks to refinancing your home. Some things to take into consideration before refinancing:
- Can you afford to refinance? – A refinance can be expensive. There are closing costs involved on the loan and you will have to pay some insurance and escrow upfront.
- How long do you plan to live in your home? – Because you have to pay closing costs you need to make sure you will live in the home long enough for the monthly savings to be greater than the closing cost investment. If you plan to sell the home in a year it may not be wise to refinance.
- Will you lose your equity? – For those who cannot afford closing costs upfront there may be an option to roll the closing costs into the new loan thus using your equity to pay them. If you do this make sure you pay extra on your loan to make up the lost equity as fast as possible.
- Would you be better of selling? – If you are an American how has enough equity in your home to sell that is a solution to consider. Real estate can be very emotional. Do not get your emotions involved when decided if you should keep or sell your home. Make the decision that will most benefit your financial future.
- Will you home appraise for enough? – In order to refinance you need to have 20% equity in your home. When some houses lost value families also lost equity. If the equity dipped below 20% it would be challenging to refinance.
- Will refinancing help? – If your finances are in bad shape it might be time to accept that even a refinance won’t help. It might be time to talk to a bankruptcy attorney and find out what the best solution is for you.
If you are looking into how to cut costs, refinancing may be the answer. It can be a great financial decision that will keep some people out of bankruptcy. Just make sure it’s the right choice for you.
Article written by Chicago bankruptcy attorney David Chang of Chang and Carlin, LLP