Mortgage Refinancing


What is Refinancing?

It is the process of obtaining a new mortgage with all or some portion of the proceeds used to pay off the original mortgage.

Why Homeowners Refinance their Mortgages

Attractive Interest Rates : It can make sense to obtain a new mortgage to pay off your existing mortgage if interest rates have gone down since you got your original mortgage.

Switching Mortgage Type : Some homeowners refinance in order to switch the type of mortgage they have from variable to fixed interest rate, or vice-versa. Balloon or reset mortgages must either be paid in full or refinanced at the end of their 5- or 7-year term. We'll explain more about different types of mortgages later in this chapter.

Shortening Mortgage Term : Some homeowners pay off their original mortgage in order to take out a loan with a shorter term, thus paying less interest as the money is borrowed for a shorter period of time.

Cashing Out : Certain lenders will let you borrow more money than the balance on your original mortgage based on the equity you have in your home, making additional cash available for other activities or to pay off other loans.

Should I Refinance?

Refinancing can be a good way to reduce your monthly mortgage payments or shorten the term of your loan. However, taking out a new loan may involve costs. You may have to pay discount points, appraisal fees, and closing costs up front. Investigate all the fees associated with a new loan before you go to closing so that you make an informed decision as to whether you will save money by refinancing.

Is Refinancing Right for You?

Refinancing can require as much effort as getting your original mortgage, but often refinancing can result in reduced monthly mortgage payments and shorter loan terms. If you're interested in refinancing, do your research.

Ask Yourself :

Is the current interest rate significantly lower than the rate of my original loan?
Do I want to shorten the term of my mortgage?
Do I want to change the type of mortgage I have?
Can I afford the costs associated with obtaining a new loan? (Costs at closing can be as much as your original mortgage)
Am I planning to stay in my house for at least 2 years?
Am I willing to go through the process of getting a mortgage again?
If you answered yes to most of these questions, refinancing may be right for you.

When Refinancing May Not Be for You

You may want to do more research about refinancing if:
You've had your current mortgage for a long time
You have already paid off most of the interest on your mortgage
Your mortgage has a prepayment penalty clause
You are refinancing to pay off unsecured debt
You plan to move from your house within 24 months

If any of these statements sound like your situation, talk to a mortgage professional and Find out if it makes sense for you to refinance.

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