Mortgage refinancing

Refinancing is when you apply for a secured loan in order to pay off another different loan secured against the same assets, property etc. If this original loan had a fixed interest rate mortgage which has now declined considerably, then you would like to avail of a new loan at a more favorable interest rate.

When is Refinancing an Option

Typically home refinancing is done when you have a mortgage on your home and apply for a second loan to pay off the first one. While taking the decision to go for the home refinancing option, it is important to first determine whether the amount you save on interests balances the amount of fees payable during refinancing.

Benefits of Home Refinancing

Imagine a scenario where you can have access to extra cash, while simultaneously lowering your monthly mortgage payment. This dream can become a reality through mortgage refinancing.

A house is the largest asset you may ever own. Likewise, your mortgage payment may be the largest expense you'll have in your monthly budget. Wouldn't it be great to use this asset to reduce your monthly payment and put extra cash in your pocket? When you refinance your mortgage, you can take advantage of the equity in your home and enable this to take place.

Lower Refinance Rate, Lower Payments

When you purchased your dream home, the financial environment dictated interest rates. While certain factors, like your credit rating and the amount of the down payment that you were able to afford, influenced your interest rate, the single most important factor was the prevailing rates at that moment. However, interest rates fluctuate. When the Federal Reserve enters a rate-cutting period, the prevailing rates may become significantly lower than when you originally purchased your home.

By refinancing your mortgage when interest rates are lower, you can exchange a higher interest rate for a lower one, which, in turn, will lower your monthly payment.

Shorten the Length of Your Mortgage when Refinancing

Another advantage of home refinancing is that you can shorten the term of your mortgage. Let's say, for example, that you originally had a 30-year mortgage and have been paying it for eight years. Thanks to mortgage refinancing, you can switch to a shorter term of either 10, 15 or 20 years. This can save you thousands of dollars of interest. Also, if the refinance rate is lower, but you maintain the same monthly payment, you will build up equity in your home more quickly, because more of your payment will be going towards principal.

Exchange an Adjustable Rate for a Fixed Refinance Rate

When interest rates are low, adjustable rate mortgages (ARMs) are the housing market's darlings. However, as interest rates increase, that adjustable rate may not look as sweet. It's also possible that you opted for an ARM because your financial future was less secure, or you weren't sure how long you'd stay in your home. If, however, you've become financially stable and know that you'll be staying in your home for several years, it may be beneficial to swap that fluctuating adjustable rate for a fixed one. You'll have more security knowing that your monthly payment will remain steady, regardless of the current market environment.

Access to Extra Cash - Cash-out refinancing

One way to put more money in your pocket is to tap into the equity you've built in your home and do a "cash-out" refinancing. In this scenario, you can refinance for an amount higher than your current principal balance and take the extra funds as cash. This can provide money for remodeling your home, paying off high-interest rate bills, or sending your kids to college.

Bye, Bye PMI

If you were unable to make a down payment of 20 percent when you purchased your home, you may have been required to purchase Private Mortgage Insurance (PMI). If your house has appreciated since then, and you've steadily paid down your mortgage, your equity may now be more than 20 percent. If you refinance, you will no longer need PMI.

In many ways, your house is like a cash cow. If you have discipline and knowledge of the benefits of refinancing, you can tap into its milk for years to come.

Refinance Basics

There are some things to look out for when you consider refinancing.

Refinancing Involves Writing a New Mortgage

This means a couple of things. The most important thing to realize is that the lender will not just fork over a new, lower interest rate. You will be asked to bring in income documentation, and your credit score will be checked, just like with your original mortgage. This means, of course, that there will be fees involved. You will have to pay closing costs on this mortgage just as you did initially.

The other important point about writing a new mortgage is the fact that, if your financial situation has changed, you may not qualify for a mortgage, or you may not get a lower interest rate. For example, if at the time of the initial mortgage, you and your spouse both worked full time, and now, one of you has decided to stay home, it does not matter if you are paying the mortgage on time every month, the lender will notice the change in income.

If you are concerned that, due to lower income, you may not qualify for a refinance, you should hop online or talk to a lender in person. If you have lived in your home for a while, you may have paid a good bit down on the principal. Remember, you are refinancing the amount left on the loan, not the original purchase price.

Refinance for Less Monthly Payments or Shorter Term

When you refinance, you are, of course, taking advantage of a lower interest rate to save money. There is, however, more than one way to save money. You can keep the length of the mortgage the same as it currently is and lower your monthly payment amount, or you can keep your payment the same, and shorten the length of your loan. If your financial situation has improved since the original purchase of your home, you may even consider increasing your monthly payment in order to dramatically shorten the term of your loan, saving money in the long run on interest payments.

Whether you choose refinance to lower your monthly payments or refinance to shorten the term of the loan has many determining factors. If you can handle the amount of the monthly payment, shortening the term saves money paid on interest and may allow you to pay off your mortgage in full by a point when the extra money would be valuable, such as retirement, or children going to college.

If your current monthly payments are causing problems, such as limiting the amount you can save toward retirement, or preventing you from replacing a car that is in need of work, you may choose to lower your monthly payments, freeing up some cash for things that you need right now.

Time to Refinance Your Adjustable Rate Mortgage?

For the past few years, refinance fever has been fueled by a desire to get the lowest possible rate in a declining interest rate environment. And because the end of cheap rates was not in sight, many homeowners chose an adjustable rate mortgage, so that they could continue to enjoy lower rates into the future.

But now the situation has changed, and many people who chose adjustable rates are ready to shift gears in order to avoid paying higher interest if rates spike upward. Because interest rates are still near their historical lows, it still may be an excellent time to lock in a fixed rate.

Refinancing Your Mortgage

Your lender can assist you in doing the math to get an “apples to oranges” comparison of your existing loan with current loan options. For those who like an adjustable rate, but want to lock in a low rate for the next few years, a hybrid mortgage may be an appropriate choice because of the flexibility it offers. If you plan to live in your house only for three or four more years, the hybrid may be even better than a fixed rate, because the first years of a hybrid loan are generally charged at a lower rate than traditional fixed-rate loans. After a few years, however, the hybrid converts to an adjustable rate mortgage, and by then, rates may be too high for your liking.

Getting the Fix on a Fixed-Rate Mortgage

If you want to ensure yourself the predictability and security of paying the same interest rate for the life of the loan, a fixed-rate mortgage is a great choice. You’ll be able to enjoy the current low rates for as long as you make payments on your house, no matter how high interest rates go.

Historically, interest rates have hovered near 10 percent, so it’s not unreasonable to expect them to return to that double-digit territory as the economy cycles through a downturn. If you don’t want to participate in that kind of inflation, there’s no time like the present to opt out of an adjustable rate loan and settle into one that’s not going to offer any unwelcome surprises.

Refinance mortgage rates

Find the best mortgage refinance option

To ensure the best savings possible, you can capitalise on the option of refinancing your mortgage loan. You will find that the refinance mortgage rates are usually lower than your original loan when you actually compare rates. When you are refinancing your home mortgage you are typically getting another loan of approximately the same amount but the refinance rates are usually much lower and thus more beneficial to you. Thus refinancing a home loan can actually afford you great savings.

Comparison of refinance rates online will help you decide on what is best for you. Taking advantage of these lower refinance mortgage rates will help you to save money which you can use for other purposes like home improvements, buying a new car, children's tuitions, planning vacations etc.

Mortgage refinance comparison

Comparisons of refinancing home mortgage loans and refinance mortgage rates are very essential when you possess equity in your home. A good knowledge through a thorough comparison will help you reduce your refinance mortgage rates, allow you to change the terms and conditions of your mortgage and assist in debt consolidation. If you were to refinance your home loan through an online procedure, you may not be required to use your home as a security; instead it will allow you to integrate you debt into the amount owed. This will give you the added benefit of low refinance mortgage rates with your monthly payments.

Refinance your home mortgage loan and save money!

Given your personal needs and your financial situation, a refinance mortgage rate comparison will tell you exactly what is best for you. Refinancing of mortgage loans with low refinance mortgage rates is a good way to lighten the burden of your bills. One low payment will enable you to consolidate your bills and help you to pay off your debt in cash. Your lender will advise you of the best financial breaks through a comparison of refinancing mortgages and refinance mortgage rates.

Simple procedure for finding the best refinancing rates

Fill out the simple online form to refinance mortgage loans. It will help you in making comparisons and educated decision making. MortgageLoan.com will allow you to search for several lenders and loan programs. You can compare rates through our refinance calculators and get yourself the best refinance mortgage rates through our daily updates and rate comparisons.

Get four refinance quotes for free!

You will avail the benefit of up to 4 lenders who will get in touch with you to compete for your business. You have the option of choosing the lender that best suits your needs by comparing rates and other information and save yourself hundreds of dollars.

The Hidden Costs of Mortgage Refinancing

There can be hefty costs involved in a mortgage refinance. On the flip side, there can be ample savings. Before resolving to take the plunge, you should do the math, take everything into account, and see how much you'd really save. The answer may surprise - and even delight - you.

The Cost of Home Refinancing

Just like your original loan, refinancing a mortgage loan involves closing costs. They'll generally be lower, as some fees don't apply to refinancing; but they can still be substantial. Confirm the fees that your lender will charge this time around.

Some mortgage lenders offer an option to roll the refinancing closing costs into the loan itself, known as 'roll-in' refinancing. This will result in somewhat higher monthly payments, because your loan balance is higher; but there would be no up-front costs.

Savings versus Costs

A very popular reason why people refinance is to lower their interest rates. To see how much you can save through better rates alone, use our amortization calculator. Simply enter the loan amount, interest rate, and the length of the loan to see how much interest and principal you'll be paying each month.

A couple of percentage points can make a big difference. For example, you can save $300 a month by switching your $180,000, 30-year loan from a rate of 9 percent to 7 percent. That's quite a bit of pocket change, even for those with big pockets.

However, if you do a home loan mortgage refinancing for a lower rate, it may lead to a smaller tax deduction, and, in effect, higher income taxes. It's an overlooked cost of refinancing. Look at your tax bracket to figure out the impact it will have on on your tax return. For instance, if you're in the 25 percent tax bracket, and a mortgage refinance will lower your monthly interest payment by $200, taxes will claim $50 of that savings. As a result, your true savings will be $150 a month.

Refinancing can also help you lose those pesky PMI payments, especially if your home has increased in value since you bought it. (Check your current mortgage statement to see how much PMI is costing you now). As long as the new loan amount is lower than 80 percent of the property value, you can end your PMI payments.

The Bottom Line

If you're stuck in a high-interest loan, refinancing today may save you a lot of money. Lowering your rate just a couple of percentage points may let you recoup the closing costs in a matter of months. However, before you leap, look at the numbers. Preparation makes for great savings and no unanticipated surprises.