SAHBA Home Hints
February 1, 2009
Refinancing 101: How to Save Through Refinancing
For many, a house is the largest asset they may ever own. Likewise, a mortgage payment may be the largest expense in their monthly budget. Through refinancing, homeowners can reduce that monthly payment by taking advantage of the equity in their house.
“Typically, home refinancing is done when homeowners apply for a second loan to pay off the original loan used to purchase the house,” said John Strobeck of Bright Future Business Consultants. “By refinancing their mortgage when interest rates are lower, homeowners can exchange a higher interest rate for a lower one, reducing their monthly payment.”
Homeowners also can shorten the length of their mortgage through refinancing. By shortening the length of their loan, homeowners can save thousands of dollars in interest. Also, if the refinance rate is lower, but the same monthly payment is maintained, homeowners will build equity in their home faster because more of the payment will go towards the principle.
“Refinancing is a good way to change from an adjustable rate mortgage, or ARM, to a secure fixed rate,” Strobeck, a SAHBA member, said.
“While ARMs may be low at times, they fluctuate and increase, sometimes causing a higher mortgage payment. It may be beneficial for homeowners who plan to stay in their home for several years to switch to a fixed rate. This will give them security knowing their monthly payment will stay the same no matter how the market changes.”
Homeowners who had to get private mortgage insurance (PMI) due to an insufficient down payment may find relief through refinancing. If the home's value has appreciated and the mortgage has been paid down, creating more than 20 percent of equity, homeowners may be able to get rid of their PMI.
Cash-out refinancing is another option for homeowners who need extra cash. Homeowners can tap into their equity by refinancing for an amount higher than their current principle balance, taking the extra funds as cash.
However, it is important to determine if the amount homeowners will save through refinancing will be more than the amount of fees they will pay during refinancing.
To learn more about refinancing, read the next two Home Hints where Strobeck discusses refinance how-to tips, and addresses frequently asked questions.
Details: Strobeck at 751-0676.
SAHBA represents about 720 member businesses serving the residential construction industry in Pima and Cochise counties.
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