In the article it is spoken about Lower monthly payments: how this works. Probably the most common reason that people refinance their mortgage is so that they can reduce the amount that they have to pay each month. There are actually a couple of ways that you can do this, one is good the other is not so good. That being said if you find that you are having a hard time making your monthly payments the not so good method is usually the best option that you will have available.
The first way that you can reduce your monthly payments by refinancing your mortgage is by getting a lower interest rate. The interest rate that you pay has a fairly large influence on the amount that you have to pay each month as people on adjustable rate mortgages are well aware. That being said the amount that interest rates change is normally not that much so you will probably find that the difference is unlikely to exceed a couple of hundred dollars a month.
There are a couple of different ways that you can get a lower interest rate when you refinance. If you are on a fixed rate mortgage the first is that the prime rate has gone down. Obviously if you are on an adjustable rate mortgage this will not apply to you. It is also possible to reduce your interest rate simply by switching to an adjustable rate mortgage as they always have a lower interest rate. If you are already on an adjustable rate mortgage the way that you would save on interest would be if you have managed to improve your credit since the mortgage was initially taken out.
The other way that you can reduce your monthly payment by refinancing is by extending the length of the mortgage. If you pay your mortgage off over a longer period of time the amount that you have to pay each month will be reduced considerably. This can be a good option if you are really having a hard time making your payments and you have to reduce them by a significant amount.
There is of course one huge downside to extending the length of your mortgage, it will significantly increase the amount of interest that you have to pay. Adding time to your mortgage will likely cost you tens of thousands of dollars in interest payments that you otherwise wouldn’t have to make. Most people significantly underestimate just how much of an impact this actually has.
That being said if you are having a hard time making your mortgage payments this may be your only option. If you have tried to trim expenses elsewhere and you find that you just can’t do it then refinancing is well worth considering. Just make sure that you don’t rush into and that you consider all other options first.