What Is a Refinance Mortgage?

Everyone has been affected by the recent recession and this is the reason why Refinance Mortgages are getting popular in the market today. People are looking to refinance their mortgage. Those people who have good credit history have very high chances of getting the best possible interest rate. This will help them save thousands of dollars in terms of their mortgage. Here we are going to talk about what a refinance mortgage is all about.

In simple words a Refinance mortgage is a mortgage which you get in replacement of another mortgage or loan. Usually this term is used as home refinancing. When you have a house on a mortgage with a fixed interest rate may want to consider refinancing your home. This is recommended because with the passage of time interest and mortgage rates keep on changing. This is why refinance mortgages are available to homeowners.

When you are looking for a refinance mortgage then you will have to find a new lender who can help you in this debt situation of yours. When you search the market you will find many lenders that are willing to refinance your home mortgage. A few tips which must be kept in mind is that you should never stick to one lender instead you should shop around a little bit to have an idea of what you mortgage rates and interest rates will be. One more step to consider, is different lenders will give you different rates and if you are not aware of what you are looking for you can be mislead very easy. You should know how to calculate mortgage and interest rates and what are the factors that affect mortgage rates and interest rates as well.

Your credit score plays a vital role in mortgage refinancing. If you have a good credit history then you have more chances of getting a lower interest rate and if you don’t have a good credit score then you might not get a better deal or such a deal that you are looking for.

There are certain criteria which you must learn. One of these tips is the refinance calculator. This tool is very good because it can calculate today’s mortgage rates. Such tools will help you a lot to find a better deal and the rate you are looking for.

Last but not last is that you must keep in mind you are looking for s mortgage refinance so you must settle at such a place where you get good, low and adjustable rates.

Refinance Mortgage Loan Compared With Home Equity Loan

Both refinance home mortgage loan and home equity loan allows cashing out the equity in a property. However, they are different type of loans, serving different needs.

Refinance mortgage is used to replace the existing mortgage with a new and improved loan. The purpose of refinance mortgage loan is mainly to lower the interest rates and the monthly payments on a mortgage. During the process of mortgage switch with refinance, providing there is equity in the property, some cash may be taken out by getting a larger mortgage. Refinance is similar to a normal mortgage in that you have closing costs and fees to pay. Refinance works well in the periods of lower interest rates. The homeowner may take advantage of lower rates by replacing the existing higher interest home mortgage with the improved one. This process will lower the interest on the entire mortgage on the house. In fact, the borrower may pay off several loans including personal loan and credit card bills with the new mortgage. By doing that the overall interest rate and monthly loan payments may be lowered substantially.

In order for refinance mortgage to be beneficial, the home owner needs to stay at least couple of years in the property to recover the closing costs and fees paid during the refinance process and start saving real money.

Home equity loans do not require the home owner to pay off the existing mortgage. They are taken as cash out in the form of second mortgage on top of the existing mortgage. The existing mortgage with its interest rate and payment terms remains untouched. The fees and closing costs on home equity loans are much lower compared to refinance mortgage. On the other hand the interest rates offered on refinance mortgage loan would be lower than home equity loan.

Home equity loans may work out better at periods of high interest rates, especially when the existing mortgage rates are lower than the rates offered currently. Home owner who needs cash and wants to tap into the home’s equity to get the cash in the high interest periods could just get the cash needed in the way of additional borrowing. As the home equity loans are stand alone loans, these loans can be paid off separately from the home mortgage. The home owner may want to improve the home before selling so that it could be sold for a higher price shortly. If the home is to be sold in the near future, home equity loan would be a better option.

When deciding which financing option to choose, consider the purpose of the loan. If the mortgage applicant wants to stay at the property, but wants to lower the mortgage interest rate or change his mortgage from adjustable rate mortgage to fixed rate mortgage, refinance mortgage serves this purpose. If small amount of cash needed for a short period of time, getting a home equity loan will be a much cheaper option of borrowing for this purpose. Home owner should consider how long the house intended to be kept. If the property is to be sold shortly after refinancing mortgage, the home owner may loose money, due to the closing costs paid during the refinancing process.

Refinance Mortgage – The Cost Of Doing Business

There is always a possibility of getting a no-cost refinance. Mortgage rates being what they are, this is, of course, a very welcome option. But lenders are in business to make money. Keep this in mind when you are trying to get a refinance. Mortgage problems make your entire fiscal situation even worse if not properly managed.

If your creditor is not earning income by charging direct costs for the loan, those fees will be integrated into the loan or you will be paying through an interest rate that is higher than normal. It is true that some banks offer true no-cost loans but not a lot of them do. Make sure you read your agreement thoroughly. You can get a Good Faith Estimate. When you do, ask the lender to guarantee it. Legally, Good Faith Estimates do not have to be guaranteed. This makes them almost worthless. However, lenders will guarantee these estimates if they do business with you.

It is a complex thing to seek refinance. Mortgage transactions have many costs attached. These include, loan discount points, processing costs, administration costs, application costs, and many others. Lender charges can be negotiated by the borrower. Some of them can even be waived. A Yield Spread Premium is the money that banks give to mortgage brokers for bringing your loan. Ask about this beforehand as you might have received a lower interest rate if the lender did not pay the broker a Yield Spread Premium.

What Is The Downside?

The bad things about a refinance? Mortgage refinance fees you pay to acquire the loan for one thing. You might not recoup these fees for a number of years. Another is the extension of the amortization period. You may be qualified to shorten it but you simply may not want to pay more each month. Also, a mortgage refinance makes the entire mortgage just that much bigger. The position of your equity will be affected by the refinance. Mortgage will increase if you take out the refinance in cash

Bill payment is something people do with a refinance. Mortgage payment is not the priority for them. They also use the cash to pay off credit cards. This is not a wise course of action. You will only dig yourself deeper into debt.

And The Upside?

Sticking with the home long enough will help you break even on the cost of the mortgage refinance. Lower interest rates and monthly payments will greatly improve your cash flow. You can also shorten your loan period in exchange for higher mortgage payments. Finally, the cash you obtain can help you in another investment. You just have to make sure the rate of return is higher than your interest payments.

Clearly, there is a lot to learn about mortgage refinance. A lot of it depends on your particular situation. As with most things, seeking professional advice will yield better results. Make sure that the counselor understands your situation and what you intend to do with the refinance.