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Issues To Consider When Refinancing a Mortgage

Article by Dan Lewis

People looking to have some extra money often look to refinancing their mortgages. Doing such a thing can lead to a lower interest rate and cash in your own pocket. However, there are some things to know prior to considering this.

Issues To Consider When Refinancing a Mortgage

First of all, it is important to know that most of the payments you have made against your first mortgage are interest. Mortgages, like most loans, are front loaded with interest. 90 percent or more of your payments, at the start, will be going solely to interest rather than principle (the actual amount owed). So, if you’ve been paying the mortgage for a few years, you’ve already paid off a good portion of the interest you’ll be paying for the duration of the loan. What this means is that if you do something like refinance, you will get a lower rate, but you’ll go right back to square one when it comes to paying interest again.

There is another option available for getting money, a home equity line of credit. This is a credit line available to you that the lender establishes based on the equity you own of your home. The more equity you own on the home, the more the credit line is. This is a very useful form of loan since you will only be charged interest on whatever money from that credit line you actually use. Therefore, it is technically not a real loan, but money that is available to be loaned to you at any time. Home equity lines of credit generally carry good interest rates and this should be considered before looking into refinancing your current mortgage.

While refinancing a mortgage can seem like a good option due to the lower interest rates, people simply do not realize that the interest paid just starts over. You are back to square one. So look to refinancing as a last resort. Rather, look to other forms such as the home equity line of credit when you need money. It can be very beneficial and money saving to evaluate all of your options.

Dan Lewis is with Great Western Mortgage – San Diego mortgage brokers providing San Diego home loans.

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