Learn more about mortgage refinancing and get all the facts you need to know when restructuring your home loan.
Before you actually begin to consider refinancing your home perhaps you should know what exactly the process of refinancing is and what it entails. When you decide that you’re going to refinance you have to start the loan application process from the beginning to apply for a new loan for your home. When you decide to refinance you can choose whether to make a new deal with your current lender or shop around for a different loan provider.
People refinance for a variety of reasons such as getting a lower interest rate. A point or two may seem small at first but when the numbers are calculated a one point difference in your interest rate can save thousands through the years especially because mortgages typically run for either fifteen or thirty years. Another reason some may decide to refinance is to get a shorter term which also saves on thousands of dollars. They may have obtained an increase in their income and decided to make a change in their financial situation. Yet another reason is to try to get a lower monthly payment or even to get the fixed rate mortgage switched to adjustable or vice versa.
Before you begin to consider refinancing you should know a few things. First, consider the actual cost of refinancing. It is not free and it typically costs approximately 2-3% of the total loan cost. You can divide the fees for the mortgage by the monthly savings you will get from refinancing your mortgage. You will get the total in savings and then discover how long you’re going to have to wait to break even.
Another thing that needs to be considered is how much any penalties for paying off the loan early will be. When you refinance you are paying off one loan by getting another. Add this figure to your closing costs for refinancing alone and then recalculate your break even point to be certain that you will not be losing any money overall when you refinance.
Equity is yet another, and probably the most important, factor to consider when you decide to apply for refinancing. Negative equity is the difference between what your home is worth currently and how much you owe on it. If the difference is less than the lender wants to offer you, you either cannot get the refinancing or you may have to pay the difference yourself either by cash or another payment method. The current market conditions and property assessments have driven many home prices down and therefore it might not be the right time for you to refinance. You may want to wait until you can pay the difference or until property values begin to climb which does happen but patience is a requirement of this.
Refinancing is a viable option for many people as long as all the pieces of the puzzle are fit into place properly. If something doesn’t work out just yet don’t get discouraged because refinancing is always an option in the future when the time is right for your situation.
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