What You Should Know Before Refinancing
Getting a new mortgage to replace the original is called refinancing. Refinancing is done to allow a borrower to obtain a better interest term and rate. The first loan is paid off, allowing the second loan to be created, instead of simply making a new mortgage and throwing out the original mortgage. For borrowers with a perfect credit history, refinancing can be a good way to convert a variable loan rate to a fixed, and obtain a lower interest rate. Borrowers with less than perfect, or even bad credit, or too much debt, refinancing can be risky.
In any economic climate, it can be difficult to make the payments on a home mortgage. Between possible high interest rates and an unstable economy, making mortgage payments may become tougher than you ever expected. Should you find yourself in this situation, it might be time to consider refinancing. The danger in refinancing lies in ignorance. Without the right knowledge it can actually hurt you to refinance, increasing your interest rate rather than lowering it. Below you will find some of this basic knowledge written in order to help you reach your best deal. For comparative purposes, here is a rate table highlighting current rates in your area.
What Is Refinancing?
Refinancing is the process of obtaining a new mortgage in an effort to reduce monthly payments, lower your interest rates, take cash out of your home for large purchases, or change mortgage companies. Most people refinance when they have equity on their home, which is the difference between the amount owed to the mortgage company and the worth of the home.
- Tips for Consumers Refinancing their Homes – Some things to think about before deciding to refinance.Mortgage Application.
- Is it Time to Refinance? – How you can tell you are in the best position to refinance.
- When Should We Refinance? – How refinancing at the right time can help you increase equity and pay lower interest rates.
- Home Mortgage Refinancing while in Bankruptcy – When filing for bankruptcy, refinancing a home mortgage loan can ease your burden.
- What Are The Advantages Of Refinancing?
One of the main advantages of refinancing regardless of equity is reducing an interest rate. Often, as people work through their careers and continue to make more money they are able to pay all their bills on time and thus increase their credit score. With this increase in credit comes the ability to procure loans at lower rates, and therefore many people refinance with their mortgage companies for this reason. A lower interest rate can have a profound effect on monthly payments, potentially saving you hundreds of dollars a year.
Second, many people refinance in order to obtain money for large purchases such as cars or to reduce credit card debt. The way they do this is by refinancing for the purpose of taking equity out of the home. A home equity line of credit is calculated as follows. First, the home is appraised. Second, the lender determines how much of a percentage of that appraisal they are willing to loan. Finally, the balance owed on the original mortgage is subtracted. After that money is used to pay off the original mortgage, the remaining balance is loaned to the homeowner. Many people improve upon the condition of a home after they buy it. As such, they increase the value of the home. By doing so while making payments on a mortgage, these people are able to take out substantial home equity lines of credit as the difference between the appraised value of their home increases and the balance owed on a mortgage decreases.
- Help for Homeowners – There has been recent legislation regarding refinancing. Take a look and know your rights.
- Home is Where the Equity Is – An article on the importance and process of building equity.
- Home Affordable Refinance Program – New programs are available to help you refinance.
- Streamline Your FHA Mortgage – This specific type of loan can be extremely beneficial to the homeowner looking to refinance.
- Refinancing May be More Costly than You Think – The hidden costs and fees of refinancing a mortgage, even when there are lower interest rates.
What Are The Risks?
One of the major risks of refinancing your home comes from possible penalties you may incur as a result of paying down your existing mortgage with your line of home equity credit. In most mortgage agreements there is a provision that allows the mortgage company to charge you a fee for doing this, and these fees can amount to thousands of dollars. Before finalizing the agreement for refinancing, make sure it covers the penalty and is still worthwhile.
Along these same lines, there are additional fees to be aware of before refinancing. These costs include paying for an attorney to ensure you are getting the most beneficial deal possible and handle paperwork you might not feel comfortable filling out, and bank fees. To counteract or avoid entirely these bank fees, it is best to shop around or wait for low fee or free refinancing. Compared to the amount of money you may be getting from your new line of credit, but saving thousands of dollars in the long run is always worth considering.
- Refinancing Risks Have Not Become Smaller – There have been reports that risks are diminishing when refinancing. This article argues against that idea.
- Refinancing: The Top 5 Mistakes You Don’t Want to Make – Some of the mistakes people make when refinancing can have disastrous effects. Avoid them with this article.
- Refinancing Won’t Fix the Housing Market – How massive amounts of refinancing is affecting the country as a whole.
What Do I Do To Refinance?
The first thing you must do when considering refinancing is to consider exactly how you will repay the loan. If the home equity line of credit is to be used for home renovations in order to increase the value of the house, you may consider this increased revenue upon the sale of the house to be the way in which you will repay the loan. On the other hand, if the credit is going to be used for something else, like a new car, education, or to pay down credit card debt, it is best to sit down and put to paper exactly how you will repay the loan.
Also, you will need to contact your mortgage company and discuss the options available to you, as well as discussing with other mortgage companies the options they would make available. It may be that there is not a current deal which can be met through refinancing that would benefit you at the moment. If that is the case, at least you now know exactly what you must do in order to let a refinancing opportunity best benefit you. When refinancing, it can also benefit you to hire an attorney to decipher the meaning of some of the more complicated paperwork.
Will Refinancing Your Mortgage Save You Money? – Perhaps the most important question to ask yourself before refinancing, this article gives you the tools to come up with an informed answer.
How to Decide Whether to Refinance – There are so many things to consider before refinancing. Use this resource to organize your thoughts.
Refinancing Your Home – A housing specialist’s home ownership fact sheets with information on the best time to refinance.
Refinancing and the US Economy – The issues regarding the costs and benefits of mass refinancing by the American people.
Saving Your Home in Chapter 13 Bankruptcy – How refinancing your mortgage can actually help you while in Chapter 13 bankruptcy.
Streamline Refinancing – Some consumers may be eligible for refinancing options which close quicker and at lower costs than a typical refinance.
When Can I Refinance My Home?
Most banks and lenders will require borrowers to maintain their original mortgage for at least 12 months before they are able to refinance. Although, each lender and their terms are different. Therefore, it is in the best interest of the borrower to check with the specific lender for all restrictions and details.