Downsize is one of important thing in loan planning. Now home prices have headed in the other direction, homeowners are seeing the wisdom of the cash-in refi. Many refinancers who want to lock in historically low rates (recently an average of 4.3% for a 30-year fixed-rate mortgage) are bringing extra funds,beyond closing costs, to the settlement table. Here are the tips to downsize your mortgage.
22% of households that refinanced in the second quarter of 2010 put extra cash into their homes, said Freddie Mac, which buys mortgages from lenders. Some homeowners also see accelerated mortgage payments as an investment, earning the equivalent of the rate you pay on the loan. In that sense, paying down your mortgage beats money-market funds and CDs. And unlike an investment in the stock market, the returns are guaranteed.
Higher monthly payments on your mortgage would decrease your cash flow. "You need to look at whether that money could be better spent elsewhere," says Keith Gumbinger, of HSH Associates. "Maybe it could be used to pay down credit-card debt or go toward your retirement plan."
Some financial planners think younger homeowners should not pay down their mortgage early. "Anyone under 40 should be funding a retirement plan, and anyone over 50 should be concentrating on paying off the house," says Rick Kahler, of the Kahler Financial Group, in Rapid City, S.D. However, if you're close to retirement and paying off the mortgage would mean raiding too much of your savings, it may not be a good idea. So, make your planning and decision to downsize your mortgage now!
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