Last year homeowners used refinancing as a method that allowed them to erase their mortgage debt faster, but there are factors that homeowners must now consider that may help him pay off their home loan in a timelier manner but could also create some problems for homeowners. Obviously, last year many homeowners saw record low interest rates on home loans and were able to refinance to a more affordable monthly mortgage payment, or a shorter mortgage payment term which allowed them to get out of debt faster and have less cost overall, when interest was factored in.
When it comes to homeowners who are erasing their mortgage debt faster in the hopes of owning their home outright, there are still some refinancing options that could be available or simple payment strategies that homeowners have implemented as a way to help them be free and clear of this financial obligation. Again, some homeowners are still able to take advantage of low interest rates, and some advisors feel that mortgage rates are going to increase in 2011 so homeowners considering refinancing for the purposes of either a lower rate or shorter mortgage term may not have much longer to find affordability, but again, this is no sure thing. Yet, some homeowners have been happy with their current home loan and have simply paid more each month, which will allow for the additional amounts paid to be applied towards their mortgage principal.
In some cases, these homeowners who refinance for either a 15 or 20-year fixed-rate mortgage have sometimes seen an increase in their monthly payment obligation, but there have been cases where a homeowner has been able to refinance at such a lower rate that there has been little or no change in their monthly payment obligation. However, homeowners need to be sure they are in the proper financial position to take advantage of refinancing as paying off a mortgage earlier through refinancing for a shorter mortgage term can be more expensive as closing costs and, again, the possibility of a higher mortgage payment may be present. Yet, as interest rates have remained relatively low on home loans, there is still the fact that some homeowners do not qualify for a substantially lower rate than what they currently have and in these cases refinancing for a rate only slightly lower than a homeowner’s current interest rate could negate any benefits when closing costs are factored in.
However, some homeowners have also simply paid more than their mortgage requirement each month, which again, allows for extra money to be applied towards a homeowner’s principal and can lead to overall lower costs since their mortgage will be paid off early. However, when homeowners use this method to lower their overall mortgage costs, advisors at Bankrate.com state, “When you pay extra, make sure the extra is applied to the principal balance, not just set aside for the next payment. And before you make extra payments, read your contract and make sure you won’t have to pay prepayment penalties.”
Obviously, there are some homeowners who are unable to take advantage of these options for erasing their mortgage debt faster through refinancing, but for individuals who may be worried about the future of the housing market or who may simply want to own their home faster than their current repayment plan will allow, carefully considering these options and researching their personal financial situation will be necessary so as to make sure that either refinancing or paying early will be affordable and will be in their best financial interest.