Refinancing Time Again? »
Not for us. But it seems like the interest in the refinancing market has been rising again, and a lot of people are "taking money out of their houses". This is an interesting approach. Don't get me wrong - I understand the appeal of money in a checking account instead of sitting unused in the house. What I don't get is how common it is these days for people to simply take on more and more payments, simply because that's what they do.
Put simply, when you refinance, you may lower your payment. It might even stay about the same and allow you to take money out of your home, making it seem like free money. But in most any case, you're refinancing for another 30-year loan, extending the period over which you must make those payments. Resetting the clock in a sense.
Frankly, I'm looking forward to the day when our house is paid off. For those keeping track, it should be December 1, 2005 (unless we meet any unexpected bumps in the road between now and then). While our house payment is already lower than most people's rent payment, we just don't want to make payments of any sort for the next 25 or so years.
Sure, we could prepay some of the principal each month (and have been, at a lower rate), but since most of the interest in mortgages is front-loaded, it's not helping all that much, and it's just getting us to the point where we pay back the principal faster. We could refinance again to an even lower monthly payment, but then we're back to a 30-year payoff. So we upped the rate at which we're paying things back, and hope to have it paid off this year.
If we refinanced, we'd just start paying more interest into the pockets of the lenders. And perhaps to a PMI company, depending on the loan-to-value ratio of our newly refinanced home. Debt-free in today's society? I know it's pretty unlikely, but we're well on our way. I hope it works out like we expect.
Update: Want a home, but not sure whether to rent or buy? Check out this piece on the subject. It's certainly not everything, but it gives you a pretty decent basis from which to start your planning.
Comments (3)
I always recommend taking out a loan that give you the lowest interest rate. Then paying that loan back as quickly as possible. If refinancing would take your loan from 8% to 6%, I would recommend it. However, I the second part of my recommendation still stands. Pay it back as quickly as possible.
Posted by Ted | July 5, 2005 7:30 PM
Oh certainly, Ted. If you can lower your rate and speed your payoff, that makes all kinds of sense in almost every case! What puzzles me are those that refinance to take money out of the loan, effectively giving themselves money today for debt tomorrow...
Posted by Chad Everett | July 5, 2005 9:52 PM
People Refinance because of Changing Reasons
A large amount of mortgage refinancers have tapped their home equity in exchange of cash in the first quarter of this year. An analysis that was released yesterday said that this quarter has the lasgest proportion compared to any other quarter over the past 15 years.
According to the latest quarterly review of loans owned by Freddie Mac, 88% of the people who refinanced their houses applied for loans that are 5% higher than their original balances. On the other hand, more than 50% took out loans that have higher interest rates than what they previously paid.
Refinancing activity increases as interest rates increase. People refinance to get out og adjustable-rate loans from second or third mortgages and home equity loans. This allows them to switch to fixed-rate loans.
Freddie Mac reported that homeowners have pulled $59.6 billion in equity out of their homes in the first three months. This is lower than the $70.9 billion that was pulled out in 2005's last quarter.
By M. Sese
Miami Real Estate
Posted by Mabelle | May 10, 2006 8:56 PM