Mortgage Refinancing

If you are interested in Mortgage Refinancing, it is normally for one of two reasons. Either to get a lower interest rate to save money in interest payments over the life of the loan. Or, you are interested in refinancing with cash out.

Mortgage refinancing can be done in a number of ways. The two most common are going to your local bank or using the internet.

The internet is becoming a more and more popular method of mortgage refinancing by the day.

Some of the reasons are obvious, mortgage refinancing over the internet is very simple, and the information you can find on the mortgage industry is limitless.

The mortgage industry is a very competitive one, so using the internet to shop around for mortgage refinancing is very smart. As opposed to using your local bank that normally has one product for you to choose from.

Finding someone to do your mortgage refinancing by way of the internet may be easier than you think. These loan officers are hungry for your business, and by putting only limited information on a secure mortgage web site, you will have at least four mortgage loan officers calling to compete for your business within twenty-four hours.

There is also no need to hide the fact that you are shopping around, this only forces loan officers to come back at you with the best rate they can possibly find in order to keep you from doing business with someone else.

The best part is, you are not committed to anything by shopping around, and this is a great way to educate yourself about the programs that are available, and to get a feel for how mortgage refinancing works.

In the end, the choice is yours. But remember, take your time and gather as much information on the mortgage industry as possible. It will help you make much wiser choices, which will pay off in the end.

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Mortgage Refinancing Basics

Your mortgage may have a 30-year term, but not many homeowners stay with the same loan for that long. In fact, the average American refinances his or her mortgage every four years, according to the Mortgage Bankers Association. That’s because paying off your present mortgage and taking out a new one can mean big savings over several years. However, refinancing comes with a price in the short term, so it’s important to consider both the costs and benefits before making your decision.

Why refinance?

Here are some reasons to consider refinancing your mortgage:

1. To obtain a lower fixed rate. If you took out a fixed-rate mortgage several years ago and interest rates have since dropped, refinancing may lower your payments considerably. A $150,000 mortgage with a 30-year term and a rate of 8 percent, for example, carries a monthly payment of $1,100. The same mortgage at 6 percent will have a payment of less than $900 a month.

2. To switch to a fixed rate or an adjustable rate mortgage. Adjustable-rate mortgages (ARMs) offer lower interest rates initially, but some homeowners find the fluctuations stressful. If rates are on the way up, you might consider locking in at a fixed rate and consistent monthly payment. On the other hand, if you want to reduce your monthly payments and are comfortable with the interest rate changes of an ARM, it could save you money to refinance to an ARM.

3. To reduce your monthly payments. Refinancing for a longer term will lower the amount you have to pay each month. You will end up paying more in interest charges over the life of your loan, but if you’re having difficulty making your current payments, this strategy could provide some relief.

4. To turn home equity into cash. You may want to take out a new mortgage with a larger principal, in order to turn some of your home equity into cash for a major expense. This is called cash-out refinancing. The advantage of taking out a loan secured by your home is that you can get a lower rate of interest than you can with an unsecured loan or credit card. However, if the interest rate offered for your refinanced mortgage is higher than your current rate, a home equity loan or line of credit might be a better choice.

Is refinancing right for you?

If you’re refinancing in order to pay less interest, you won’t usually see the savings right away. That’s because lenders typically charge fees when you take out a new mortgage, and you may also have to pay a penalty for getting out of your old one. To determine whether refinancing makes financial sense for you, consider these issues:

1. How long you plan to be in your home. If you expect to move in a year or two, you may never realize the potential savings you’d get from refinancing. As a rule of thumb, the longer you plan to stay in your current home, the more sense it makes to refinance.

2. The prepayment penalty on your current mortgage. Many mortgages carry a penalty if you pay them off early. The amount varies, but it is usually a small percentage of the outstanding balance, or several months’ worth of interest payments.

3. The costs of the new mortgage. When you take out a new loan, your lender may charge a number of fees including application, appraisal, origination and insurance fees, plus title search, insurance and legal costs that can add up to thousands of dollars. Lenders may also charge discount points, which are paid upfront to secure a lower interest rate. As a guideline, expect fees to eat up any potential savings unless your new interest rate is at least a half a percentage point lower than your current one.

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Home Refinancing Is More Than Just About Interest Rates

Knowing whether now is the right time to refinance should be more than just considering current interest rates. Find out some factors which you should consider when deciding home refinancing.

If you are like the rest of us, you surely would like to take a break on your monthly mortgage. Home refinancing just seems to be one of the most, if not the most promising solution to this problem. However, you probably know how this should be done at the right time in order to achieve your desired goal of financial freedom. You need to consider whether the interest rates now and the mortgage market are showing good indicators. There are factors that you also need to consider such as your mortgage insurance and your long-term goals for paying off your mortgage. You need to know beforehand whether debt consolidation is part of your financial strategies for getting a refinance. These are just a few of the considerations you need to make before you go through any refinancing. Success can only be assured if you evaluate all the critical factors and you know how to choose the right time and manner by which you refinance.

The monthly payment you need to make on your mortgage is directly related to the interest rate provided by your lender. If your existing mortgage is based on a fixed rate, it is easy to compare the interest you are paying for with that of the current interest rates and know whether home refinancing now will make sense. All other factors held in place, if your fixed rate loan provides interest that is lower than the current rates, then there is no reason to refinance.

On the other hand, if you have an adjustable rate mortgage and you are beginning to feel the interest rates rising with your increasing monthly payment, you might be better off refinancing to a fixed rate now. However, note that while it may sometimes be a good decision to refinance based only on interest rates, these rates should never be just your sole deciding factor. What does this mean? This simply goes without saying that your individual situation is the best indicator whether refinancing today is a good decision.

You may be paying unreasonably high mortgage insurance or have built-up enough equity to drop those insurance charges with home refinancing. You may have signed a five-year adjustable rate mortgage, your introductory term may be ending soon but you still do not have the means to revert to a regular amortized loan which pays the principal along with the interest payments. Or, you may need some extra money to pay off high-interest debts, send a son to college, or needing a renovation for your leaking roof. These situations call for great opportunities to get some home refinancing.

Refinancing can be your ticket to relief from many burdens during this time. However, this is not to say that you only refinance on a per need basis. You still need to consider whether the market and the interest rates are ideal to ensure that you are making the right decision when getting some home refinancing. Sure, to refinance should be more than just about interest rates. It should also be about right timing, proper financial planning, learning your options and making the right decisions.

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