by Kathleen Seligman
6/6/2006 If you have a telephone or a television, then you’ve at least heard about mortgage refinancing loans. Proponents of mortgage refinancing loans encourage you to refinance your current mortgage in order to save money or to take out a lump sum that you can use to answer your financial needs. Refinancing your current mortgage loan has many potential benefits. If you are paying a high interest rate on your mortgage, than refinancing at a lower loan rate will drastically reduce the amount of money you’ll need to pay on your mortgage. Refinancing your mortgage can also change a variable interest rate loan to a safer, more predictable fixed rate loan.
What Is A Mortgage Refinancing Loan?
Unlike a second mortgage, which is the equivalent of a loan on top of your existing mortgage, a mortgage refinancing loan replaces your original mortgage altogether. By refinancing, you pay off your initial mortgage then essentially take out a brand new mortgage. After refinancing, your mortgage loan should be at a lower fixed interest rate than the one you currently pay. If you're not interested in a fixed interest rate loan for your mortgage refinancing, you can also choose another variable interest rate loan with lower bounds than your current mortgage.
Refinancing your mortgage can also supply you with cash for large unexpected expenses such as home improvements, medical bills, or your children’s tuition. Though it is not part of a standard mortgage refinancing, homeowners can choose the cash-out refinancing option that liquidates a percentage of the home’s equity. The amount of money, or equity, in a home is equal to the difference between what the homeowner originally borrowed and how much of that amount is still owed in the mortgage loan. For instance, if you borrowed $150,000 for your initial home loan and after years of mortgage payments you owe $90,000, then you have $60,000 worth of equity in your home. If your property increases in value over the years, that amount is also added to your available equity and can be accessed by a mortgage refinancing loan.
How Do You Apply For A Mortgage Refinancing Loan?
You can apply for a mortgage refinancing loan through a number of agencies including the company that owns your original mortgage loan. You can also take up one of the myriad of mortgage refinancing offers that come to you over the phone and television, or you can apply for a mortgage refinancing loan directly over the Internet. Like any other loan you may apply for, you should always shop around and collect quotes from several mortgage companies before making your decision. Many websites can make this process easier by quickly and easily connecting you to several companies that offer mortgage refinancing loans.
When applying for mortgage refinancing, lending companies will require you to answer questions about your personal finances as well as information about your home such as its type, location, and appraised value. Mortgage refinancing agencies will also want to know the facts about your current mortgage, including its amount, your monthly payments, interest rate, and whether or not you have a second mortgage.
No matter which mortgage refinancing company you finally decide to work with, however, there are some things you should keep in mind. Applying for a mortgage refinancing loan is essentially the same as applying for your original mortgage loan, and you must therefore go through all the same steps during the mortgage refinancing process. Unfortunately, this process also includes all the fees you incurred in your original mortgage loan.
Costs imbedded in your mortgage refinancing loan include an application fee, appraisal fee, survey costs, homeowner’s hazard insurance, lender’s attorney’s review fees, title search and title insurance, and home inspection fees. While the exact amount of these loan fees will vary according to your specific circumstances as well as your mortgage agency, mortgage refinancing fees can add up to thousands of dollars. Loan origination fees, mortgage insurance, and loan points, meanwhile, also add to your bill. Instead of a fixed amount, however, these fees are determined by taking a percentage of the overall refinancing loan, and normally each vary between 1-3%. Finally, an additional loan fee you may encounter as part of your mortgage refinancing is a prepayment fee from your original mortgage holder. This fee, also known as a prepayment penalty, is built into most mortgage contracts and will fine you for paying off your initial mortgage early.
Many financial experts agree that with all the accompanying loan fees and additional costs inherent in mortgage refinancing, such refinancing is only worthwhile if you can lock in a mortgage interest rate that is at least 2% lower than the one you currently pay.
How Do You Repay A Mortgage Refinancing Loan?
Since a mortgage refinancing loan replaces your original mortgage, repaying that mortgage refinancing loan is exactly the same as repaying your initial mortgage. After all applicable loan fees have been accounted for, you will be responsible for making regular monthly payments to your new mortgage holder.
Aside from seeking a lower interest rate, or moving from a variable to a fixed interest rate, you may decide to alter your mortgage’s term itself as part of your refinancing. Adjusting the life of your mortgage will obviously affect your monthly payments. As you decide whether to shorten or lengthen your mortgage’s term, it’s important to consider both your financial status as well as your long-term goals as you begin your loan refiancing.
For instance, as part of your mortgage refinancing, you might decide to shorten the term of your original mortgage loan in order to build equity in your home more quickly. This mortgage refinancing option would allow you to pay off your home loan sooner and decrease the amount of money you would pay in interest over the life of your mortgage, but it would also increase your monthly mortgage payments. On the other hand, you could opt to stretch your mortgage refinancing loan over a longer period to reduce your monthly payments. While such an agreement will cost you more money over the life of your mortgage loan, this refinancing option will allow you to allocate more of your monthly income to meet your immediate needs.
In the end, however, mortgage refinancing loans are not for everyone. If you don’t qualify for mortgage refinancing, or if you simply decide that a mortgage refinancing loan isn’t worth the price, you might still be able to gain some of the above benefits by contacting your current mortgage holder and negotiating some modifications to your present mortgage that are similar to refinancing. No matter what you finally decide, just remember that like with all other financial decisions, it’s best to examine mortgage refinancing from all angles in order to make informed decisions.
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