Mortgage Refinancing In All Its Aspects

Posted by Nick Niesen on October 29th, 2010

Mortgage refinance is an option that we have if we would like to get rid of our current secured loan and get a newer one in its place. The same assets act as collateral. This means that you take on another loan to replace the old one with the same property used as security against the new loan. Mortgage refinance is especially advantageous for people who would like a fresh loan with lesser interest costs by refinancing it at a marked down rate.

The great thing about mortgage refinancing is that it enables people to have a new source of funds while the repayment dues are a lot lower than before. Yet another reason for refinancing is in order to draw out the duration of the loan. The funds which may be acquired from refinancing is allowed to be used with almost any purpose, including the opportunity to pay off other debts.

Mortgage refinancing also helps if you are seeking to get rid of your adjustable rate mortgage and get a fixed rate mortgage instead. Since a variable-rate loan tends to shift its interest rate (depending on prime rates which in turn rely on a fluctuating economic index such as currency strength and economic growth), moving over to a fixed-rate mortgage is more beneficial in the long run. Even if the adjustable rate is somewhat lower, a fixed rate is often a better bet.

A shift to mortgage refinancing is a good decision, especially if the borrower is convinced that this will be a great way to save on a lot of expense. This could be either for the short term or for the long run, or if he needs an extension of the loan in order to compensate for unanticipated expenses such as medical and educational dues.

At the same time, one must bear in mind that refinancing may not always be a money-saver. This means loans with provisions incurring penalty on the borrower for an early repayment of the loan, either in its entirety or in part. It also costs money since it involves closing and transaction fees. Before you get the loan, ensure that you save enough despite these costs.

Some kinds of refinancing plans require that the borrower will pay a certain amount as initial fees in order to secure the loan. This is as long as the market rate is lower than your current rate by at least 1.5 percent. With cash-out refinancing, the borrower may refinance the existing loan for one with a higher amount and keep the cash difference for himself. But this might not lead to a lowering of the monthly installments or a shortening of the duration of the loan in question.

If you are looking at refinancing, you need to be prepared to be asked for a certain initial amount before you can be forwarded the refinance mortgage. This portion is commonly referred to in the industry as points or premiums, wherein every point equals to one percent of the total amount of the loan. The advantage of the point system is that the borrower has the option to pay more points in return for lowered interest rates on the loan. If the borrower is keen to lower the interest rates, he could pay off some additional points by utilizing the money that he saves through refinancing.