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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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