Due to the strains in the economy
today, the government has spun stimulus programs and interventions
to prevent homeowners from losing their houses and being caught up
in the web of foreclosure. One of the main interventions that the
government has come up with is the increase of cash flow to the
market to support more loans and mortgages, and to lower rates for
mortgages and refinancing options to help homeowners keep their
houses.
Refinancing a mortgage simply means
that an already existing mortgage will be replaced by another. This
can be done by either applying for a new loan equivalent to the
previous debt, or cash out by borrowing more than you owe. For
prospective homeowners on the prowl for a refinancing plan, an
important consideration must be given on the term length of the
loan. The length of the loan, coupled with the interest rate will
determine the monthly amortization of your home.
Homeowners may choose either a
15-year or a 30-year term length for a loan. Most homeowners choose
a longer-term loan, as they will have lower monthly payments than
the 15-year loan. However, albeit having to pay for a lower monthly
payment, they end up spending more than they thought they would
be.
The scenario below will demonstrate
how a 15-year refinancing loan saves more than the 30-year mortgage
term. In a case wherein a lender approved to refinance a $200,000
worth of mortgage at an interest of 5.7% interest for 30 years, the
monthly payment will be around $ 1,200. Over the whole length of the
loan, you pay the lender an excess of approximately a quarter
million dollar in finance charges.
The same scenario in a 15-year loan
will give a lower mortgage rate, with today's falling rates, of
around 4.7%. Monthly payments definitely get a little higher, maybe
around some hundreds of dollars more, but over the 15-year loan, you
pay just around $90,000 to $100,000 in mortgage interest.
Benefits of a 15-Year Mortgage
Refinancing
Aside from saving a large sum of
money, a 15-year mortgage loan also has some other benefits. A
15-year mortgage-refinancing plan is a long-term investment that not
just secures your future by guaranteeing a return rate but also by
ultimately reducing your debt. A 15-year refinancing plan also
provides you a fixed plan to lower and wipe out monthly mortgage
expenses.
Current Rates of a 15-Year
Refinancing Plan
As of this month, the 15-year
refinancing plan dropped its mortgage and refinancing rates. It
staggered to a record low of 4.58% since Freddie Mac, one of the
giants in mortgages and refinancing, started tracking the rates of
refinancing since 1991. This is just for the fixed rate refinancing
plans, but adjustable refinancing plans also had a drip on their
refinancing rates in favor of the borrowers. However, despite the
drop in the refinancing rates, many people still seem reluctant to engage in mortgaging and refinancing as
the rates are overshadowed by pricy mortgage finances and other refinancing
expenses.
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