Mortgage Refinancing in All Its Aspects
By: Ajeet Khurana
If the mortgage that you have been repaying has become too much of a liability of late, you should think about mortgage refinancing. 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.
By going in for mortgage refinancing, a borrower would have access to a whole lot of funds while not feeling over-burdened by the repayment dues. If one is interested in prolonging the duration of the loan, refinancing is the answer. 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.
Thanks to mortgage refinancing, one can make the most of a drop in interest rates and make a shift from adjustable to fixed rate mortgages. 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. This is even if the interest rate is slightly higher than those with the variable-rate type.
Moving to a refinance mortgage is a good idea if the applicant is of the opinion that this is a move that will help him save a lot of money. 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.
Refinancing is also limited and is practically rendered useless in certain types of loans. 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. When calculating how much you could end up saving, ensure that these costs will not surpass this amount.
In certain kinds of refinancing, the borrower is supposed to pay a certain amount upfront if he wants to secure the new mortgage. 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. The downside to this technique is that this does not help in lowering the monthly payment or shortening the repayment period of the loan.
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. Ultimately, the borrower has to decide. Is he okay with paying off some extra points with the money he saves in order to chalk up lower interest rates and save up even more?
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