There are a number of reasons why a home owner may be considering mortgage refinancing. In some cases this is a good thing and can help a cash strapped property owner who is struggling to repay the underlying loan on their mortgage. But in some instances mortgage refinance is not a good thing, it all depends on the home owners particular circumstances.

It basically entails paying off the present underlying loan and replacing it with another, usually more affordable loan. It provides the home owner with the opportunity to shorten the term of the loan, obtain a lower interest rate, or convert from an ARM to a fixed mortgage rate. ARM’s are adjustable rate mortgages and together with Sub-prime loans have virtually alone been responsible for the dreadful foreclosure crisis being experienced in the US today.

A refinance is one of the ways a home owner is able to access the equity in their property. They may want to tap into it to get out of financial difficulty, or perhaps make a large purchase, say another property. This means is also used to consolidate all debt, so that the loan applicant only has to pay one lump sum monthly. There are benefits and as with everything else, also pitfalls, so it is important to be aware of this.

To refinance a mortgage can cost as much as 3-6% of the principal loan amount. This can work out to be a very expensive exercise. Exactly the same steps have to be followed to refinance as would have to be taken with a new loan. The property needs an appraisal and title search, applications have to be completed and an application fee is applied to the loan.

Home owners have to take all this into consideration when they are thinking of refinancing a mortgage. They have to ask themselves whether it is going to be of real and positive benefit.

The best possible reason why any home owner would want to refinance their home loan would be to negotiate a better interest rate. If you are able to reduce the amount of the interest on you present loan by 2%, it is generally believed to be worthwhile, although some lenders advocate that 1% is sufficient.

Saving money by lowering the interest rates you pay is the one true benefit of a refinance. It needs to be able to help you save, by lowering the monthly mortgage payments, and it has to allow you to build equity in the property.

A $100,000 home loan with a 9% interest rate and a 30 year term, realizes a monthly re-payment of $804.62, the same loan, and loan term with a 6% interest rate costs $599.55. The difference in the amount of these two re-payments could mean the difference between saving a home and going into foreclosure if hard times come upon the home owner.

The author has been in the real estate business for more than 15 years. For more articles like this you should drop by his webpage which explains everything from me trying to explain refinancing a mortgage to mortgage loans first time home buyer no credit check.

Related Blogs