Refinancing provides an ideal avenue through which to change the terms and conditions of your current mortgage to better meet your financial needs. Whether immediate cash is desired for other expenses or you want to restructure the mortgage to get out of debt or obtain lower interest rates, refinancing is usually the best option. However, because the refinanced arrangement is essentially a new mortgage, it is important to make sure that the benefits outweigh the disadvantages before you seek this type of loan. The following refinance FAQs will help you decide whether or not to pursue this option.

What is the Cost of Refinancing?

When you refinance, you essentially purchase a new loan product and can expect to pay closing costs on the mortgage. The precise amount of such fees vary significantly from one state to the next and one lender to another. In most cases, however, they are substantially lower than the closing fees associated with the initial mortgage, as an appraisal, title search and similar services are not usually necessary the second time.

You will also incur the cost of interest that comes from adding extra years to the mortgage, if this is the refinancing option you have chosen. For example, if you have made payments for 10 years on a 40 year mortgage, you have already paid a considerable amount of your loan’s interest. If the arrangement is refinanced for another 40 years, the interest you pay will substantially increase. These costs should be weighed against the potential savings associated with such an arrangement so that you can decide if refinancing is your best course of action.

Should I Lengthen or Shorten My Mortgage Terms?

A mortgage can be adjusted to allow you to pay more per month and shorten the life of the loan or pay less per month to lengthen the life of the loan. Both options are beneficial if used properly, but both can create problems if used inappropriately. Lengthening your mortgage terms will ultimately reduce the monthly payments associated with the loan. However, with this option you should expect to pay more money over the life of the loan, primarily in interest. Financially speaking, this alternative may not be the most prudent option, but for some individuals it is the difference between keeping their home and foreclosure.

Shortening a mortgage will reduce the total interest paid and may save you a substantial amount of money. If you shorten the terms of your loan, you spend less time paying the mortgage off, and subsequently save a considerable amount of money on interest. It is important to understand, however, that under such an arrangement the amount of your monthly mortgage payments will increase.

When is it Wrong to Refinance?

Just as there are great reasons for refinancing, there are also times when such action may not be in your best interest. For example, if you have paid on a mortgage for a lengthy amount of time, you have probably built up a substantial amount of equity in your home. Refinancing a long-term mortgage restarts the amortization process, and you must essentially begin all over by paying on the loan’s interest instead of its principal. For this reason, if you have already  paid a significant portion of your mortgage, refinancing is generally not a good idea.

How do I Choose the Best Loan?

The best loan for you primarily depends on your individual circumstances, and therefore it is wise to isolate your goals for refinancing. Once you know what it is you want to accomplish, a loan officer can offer advice about which refinancing program is best. Many lenders also have websites that feature refinance FAQs sections where helpful information can be found. The best way for you to determine whether or not you qualify for refinancing is to check with a mortgage broker or lender. If you feel you may benefit from such an arrangement, you should consider speaking to a reputable lender at your earliest convenience.