Mortgage Refinancing

Refinancing a mortgage involves obtaining a new loan to pay it off. In this case the mortgage would be paid off with the proceeds from that loan.

Homeowners sometimes choose to refinance when interest rates drop or their property has appreciated in value.

The loan that a homeowner will refinance with usually has lower interest rates and lower payments than the initial mortgage loan.

Homeowners who chose to purchase a mortgage when mortgage rates were low usually have no interest in mortgage refinancing, but others who are stuck with mortgages with high interest rates may be interested in the refinancing option. Mortgage refinancing makes sense for homeowners whose mortgages are at least 2 percentage points higher than the prevailing market rate. It also makes sense for homeowners who plan to live in the house they are financing for a long period of time. Refinancing may involve switching from an adjustable-rate mortgage to a more predictable fixed-rate mortgage or changing to an adjustable-rate mortgage with a different interest rate and payment caps. There is also the option of switching to a mortgage with a shorter term in order to pay a property off faster and acquire more equity.

When you are contemplating mortgage refinancing you should consider the term of your existing mortgage and whether the payment caps on that mortgage will allow you to pay it off by the end of the term. You should also take into consideration, if you have an adjustable-rate mortgage, whether the next rate adjustment will drastically increase your monthly payments. Sometimes these payments can increase so much that it is worth the added cost to refinance.

Fees Involved with Mortgage Refinancing:

  • Appraisal fee
  • Application fee
  • Homeowner’s Hazard Insurance
  • Survey costs
  • Fees from lender’s attorney
  • Title search and title insurance charges
  • Loan origination charge
  • Home inspection fee
  • Prepayment penalty

If you go to the lender that initially financed your mortgage for refinancing they might be willing to waive some of the above fees so it’s good to do some research before you commit to anything.

Most mortgage plans will stipulate that borrowers cannot refinance their mortgage for at least 12 months from the time they obtained their initial mortgage. This clause is typically to prevent investment-savvy homeowners from financing homes, renovating them and refinancing them for a higher value to pay off the first mortgage that they have purchased and any charges incurred in the refurbishment.

Keep in mind that there are many things to take into consideration before you refinance your home.

Mortgage Refinancing Checklist:

  • Consider how long you plan to be in your home
  • Consider the interest rate you will have with a new loan or mortgage and the amount you will save
  • Estimate the amount of money you will need to pay refinancing fees
  • Compare terms of new mortgage to terms of old mortgage
  • Keep in mind the period remaining in the term of your first mortgage as well as the stipulations of your mortgage insurance

If you have taken into consideration all that is involved with refinancing and you still feel that the benefits will outweigh any cost or hassle than mortgage refinancing is probably a great option for you.

Refinancing can be a source of income when you need to do some necessary home renovations or when you need to put together enough money to pay for a child’s college tuition.

Keep in mind that refinancing can potentially put you deep into debt so it is important to weigh all of your options before making the decision to do so

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