Refinancing a Home:
It's more than just an interest rate
a home is not a process of changing or adjusting your
existing mortgage. It's the process of taking out a new mortgage and
using the money to pay off your current mortgage. Most people
refinance their mortgages to get a lower interest rate. The lower
rate translates into a faster mortgage payoff or a lower monthly
But, a low rate
isn't the only reason you should consider refinancing your home. It
can also help you:
1. Lower your
2. Pay off your mortgage and get
out of debt more quickly
3. Lock in a lower rate
4. Get a better adjustable rate for your adjustable rate
5. Consolidate debt
refinance, you start the loan
process over, which means you will be asked to make an application
and then undergo a credit check, title search, appraisal and so on.
You will incur closing costs just like a
first time home buyer. You
may be asking: What are the costs of refinancing? and How do you get
Should you refinance a home?
When rates are
low, refinancing a home can be a no-brainer. But, what if they're
not? Is refinancing still an option? You bet. Here are five reasons
why you should consider refinancing:
1. You want lower
rate may mean lower monthly payments. Consider taking out a new loan
same length of time that remains on your current mortgage.
option of refinancing a home if you plan to stay in your home for
the life of the mortgage or need more cash for current financial
obligations such as college or a new car.
2. You want to
pay off your mortgage more quickly
You may be able to shorten the length of your mortgage (say, from 30
years to 15 years)
while keeping your monthly payment at or near its current level. You
could save thousands of dollars in interest and assume full
ownership of your house more quickly.
Choose this option if you don't plan to stay in your house for very
long and you have ample current cash for your current financial
3. You want to
lock in a low rate
Refinancing a home may be an easy way to convert your Adjustable
Rate Mortgage into a Fixed Rate Mortgage, ensuring a stable mortgage
payment. Check first to see if your current loan has a no-charge
4. You want a better Adjustable Rate Mortgage (ARM)
Mortgage options are constantly changing. A new adjustable rate
program may be available that has more favorable rates and terms
than your current loan.
5. You want to consolidate debt
If you have enough equity in your home, you might want to combine a
home equity loan with
your original mortgage and have one manageable payment. Or you might
want to wipe out some other high-interest debt, such as credit and
charge card balances or installment loans.
There are a few
costs to consider when
refinancing a home.
In fact, traditional refinancing costs can average between 3% and 6%
of the loan amount - for example $2,400 to $4,800 on an $80,000
loan. These costs can wipe out any savings you may realize from the
lower rate or the decrease in your monthly payment may help offset
do these costs cover? Essentially, the same fees and services you
paid when you first bought your house.
What are the costs
of refinancing a home?
and Title Insurance
a legal requirement all lenders must meet in issuing a new mortgage.
The Title Insurance search confirms that no outstanding claims exist
against the property, and that the insurance guards the lender
against mistakes made in the search.
Tip: Be sure to
ask if the company holding the present title insurance policy can
re-issue your policy at a re-issue rate. This could save you up to
70%. (Your current lender can tell you which company is holding your
fee covers the lender's initial processing costs and credit report
home must be appraised again to verify its current value. This fee
will cover the cost of that independent appraisal.
fee covers all the costs associated with processing the loan.
point is 1% of the value of the mortgage. Another way to define a
point is as a pre-paid finance charge, payable when you close on
your residential mortgage
loan. Generally, the more points you pay, the lower your
interest rate. Make sure you compare interest rates using a constant
number of points. An 8 percent rate tied to 2 points is a lot more
expensive than an 8 percent rate tied to 0 points.
When faced with
the need to compare different rate/point combinations among lenders,
consumers should first convert each quoted rate to one based on a
constant number of points and then find the lender with the lowest
rate. In making this conversion, consumers should use a traditional
rule of thumb that equates each point to a 1/4 of 1 percent change
in the interest rate. This would make an 8 percent loan with 0
points equivalent to a 7.75 percent loan with 1 point.
Closing Agent and Review
lenders charge a fee for the services of the closing agent. You may
also be charged for other legal services involved in completing your
mortgages carry a penalty for paying off a loan before the stated
term is up - and it can be quite substantial. If your mortgage is
less than 10 years old, the chances of such penalty slim. Check your
original mortgage for information on refinancing a home.
Depending on your
mortgage, you could also be charged fees for a VA loan guarantee,
FHA or private mortgage insurance, and a variety of other possible
How do you get started?
Started In 3 Easy Steps:
Step 1: Determine
the rate you're paying on your current mortgage.
Step 2: Get A
Personalized Rate Quote.
Mortgage Professionals can provide you with a personalized rate
quote and determine other costs associated with refinancing a home.
Step 3: Begin the
Your Loan Officer or the Preferred Lending Center can help you with
the application process.
Supatra Chowdhury, is an international research scholar and a part
time content writer. She has written high quality articles for many
websites and has also done editing and copywriting. Ms Chowdhury
works for Freelance Writer organization, and is a contributor to