Determining which mortgage refinancing option is best for you!

With the number of mortgage loan programs available many borrowers feel overwhelmed and under-educated when trying to choose the best loan. Before getting started here are the main options to when considering a refinance.

What is the motivation for your refinance?

Are you looking to lower your rate and monthly payments? One of the most popular choices when refinancing is a fixed rate mortgage. This helps you reduce the monthly payment when qualifying for an interest rate that is lower than the rate on your current mortgage. Keep in mind the most favorable time to choose this option is if you are interested in staying in the home for several years. Some consumers prefer fixed rates loans because of the risk factor adjustable rate mortgages carry.

Interested in making home improvements, paying your child's college tuition bill, taking your dream vacation, or consolidating high interest credit card debt? Then a cash out refinance loan is what you are looking for.  This loan requires you to qualify for a loan above the amount of your current mortgage. You may be able to do this without increasing your monthly payment if you've had your current mortgage for a number of years and/or have a mortgage with a high interest rate. Also, utilizing the equity in your home to make it work for you is a good choice and paying off other debt with higher interest rates than the interest rate on your mortgage -- for example, credit cards, home equity loans, car loans, some student loans -- means you can save possibly hundreds of dollars a month.

Maybe paying off your mortgage sooner is a good fit for your situation? Refinancing into a shorter-term loan, such as a 15 or 20 year mortgage, means your payments could be higher than with a longer-term loan but you will pay substantially less interest and will build up equity faster. If you have owned your home for a number of years you may be able to reduce the life of your loan without seeing an increase to your monthly payment!  For example, if you purchased your home for $150,000 and received a 30-year mortgage at eight percent. Your payment is about $1,100, exclusive of taxes, insurance and so on. If your balance today is down to $130,000, you might take out a 15-year mortgage at six percent and have an almost identical monthly payment. If your main goal is not to save money on your monthly payment but rather you want to build up equity and pay off the home faster, this is a smart decision for you.