In a research paper from Paper Masters, an author explains how important it is to take great care when refinancing your home. One must not only take into account the importance of a drop in the interest rate; but, also the amount of money that is locked up in escrow. Your research paper should explain that micro-managing your home financing may not be for everybody; however, in some cases it can really save you some money. The following are two circumstances when money can be saved by refinancing:
- If the economy is poor
- Interest rates are low
First of all, refinancing a home is a good idea when the economy is in bad shape. During this period, the Federal Reserve usually drops the discount rate. Other interest rates are soon to follow the Federal Reserve and rates across the board start to fall. This includes home mortgage rates.
To refinance a home, the bank will have to redo the paper work for required. This takes man-hours and cost money. So, the bank will charge you a fee. In any case, one must take into account that, should one refinance, the money saved by having a lower interest rate will more than compensate the expense of a refinance fee.
Secondly, one should take care when setting up the escrow account. The escrow account is used to pay items like house insurance and taxes. These costs; however, are normally not known until the end of the year - when the government and the insurance companies decide what the appropriate amount to charge is.
So, the amount paid to insurance and taxes is approximated. This amount is then added to the total monthly payment for the home loan. Part goes to the actual loan principal and interest; and the other goes to an escrow account. In the escrow account, the money is saved until the insurance companies and the government reveal what they feel are the proper charges are for the year. The bank then pays the charges when the time is right. In other words, the money is just sitting there in the escrow account doing nothing for most of the year.
An author explains that one should take control of this escrow account. The perfect time is when a home owner approaches the bank for refinancing. He says that by paying the taxes and insurance yourself, you could be unlocking thousands of dollars for better use.