Homeowners who apply to refinance a mortgage are in effect exchanging their current home loan for a new mortgage loan with a better rate of interest. The outstanding balance on the existing loan is paid off using revenue raised by the new loan; so in short, the mortgage refinance process is a means of altering the terms of your mortgage. Homeowners can extend the life of the borrowing to reduce monthly repayments or reduce the life of the home loan by increasing monthly payments. Refinancing a mortgage is not without risk; however, in certain circumstances changing your mortgage terms can save money. Here is some information to help you decide whether mortgage refinancing is right for you.
Consider Factors that will affect the Mortgage Rate Offered
. The mortgage loan size
. Discount points
. Credit score range
. Loan closure costs
. DTI (Debt to Income Ratio)
. Floating Interest rates versus locked rates
Don’t Rely on Advertised Interest Rates
The majority of mortgage refinancing companies advertises cheap refinancing to attract custom. Low interest refinance options may sound appealing; however, cheap mortgage refinance is rarely as good as it sounds.
Learn the Cost of Refinancing a Mortgage
Calculate the refinancing fees to ensure the savings will not be swallowed by the refinancing costs. In reality, homeowners can expect to pay between three and six percent of the total sum borrowed in fees. Common refinancing fees include:
. Loan appraisal fee
. Mortgage loan fees
. An origination fee
. Refinance point’s fee
. Insurance charges, title search fees, surveyor’s costs, inspection fee and attorney fees
Does your Current Mortgage Carry a Mortgage Prepayment Penalty?
Refinance via a new lender and your current lender stands to make a loss if you repay the home loan early. This is the reason why numerous mortgage lenders charge a prepayment fee, however, homeowners studying the mortgage refinancing process will know certain states have vetoed prepayment charges. The average prepayment fee currently stands at the value of between one and six months interest.
Understanding Adjustable Rate Mortgages (ARMs)
The monthly repayments on an adjustable rate mortgage fluctuate with interest rates and low interest rates equal low monthly mortgage payments, but a sudden hike in interest rates will up your monthly repayment.
Be Wary of Mortgage Teaser Rates
Numerous adjustable rate mortgages offer a set period of lower than average monthly mortgage payments. The low interest rate may last six months to a year, however, after that the payments will soar; hence the loan deal of the century could turn out to be a devil in disguise.
Refinance from one adjustable rate mortgage to another and you should study the payment caps and interest rates. Refinancers should search for an ARM with a payment cap deal and a low initial interest rate. An ARM with a five percent payment cap cannot rise by more than five percent in the space of one month, though interest rates may rise in excess of that figure.
Learn When to Steer Clear of Refinancing
. Avoid refinancing if you have held your current mortgage for a significant period of time
. Don’t refinance if the prepayment fees are extortionate
. Avoid refinancing if you intend to move house in the near future
Commencing the Mortgage Refinance Process
Lenders consider numerous factors before making a loan offer and the mortgage offer might not be ideal if you fail to meet the criteria. Here are a few pointers to help you secure the loan of choice.
. Familiarize yourself with mortgage terms
. Shop around for the right loan
. Ensure you know about the different kinds of loan available
. Inquire about low-cost or no-cost refinancing
The Mortgage refinance process has enabled many citizens to refinance to their current mortgage and to save vast sums of money on monthly mortgage payments.