Mortgage refinancing plays a very important role for many home owners, particularly if they are struggling financially. It is a better alternative than falling prey to foreclosure, and if better interest rates can be negotiated, the home owner may find themselves in much better circumstance. Interests rates which increase as inflation increases are not a good option for most home owners.
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.
It is also a way to tap into any existing equity in the property in the case of a large financial problem or purchase, and it is also used as a way to consolidate debt or finances. There are benefits to this as well as pitfalls, and any home owner considering a mortgage refinance should be aware of both these.
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.
The premise behind lower interest rates is saving money! Your monthly payments should decrease quite substantially while still allowing you to build equity in the property. We illustrate how this can be done in this simple example:
This simple example illustrates how this may apply: You have a home loan for $100,000 and at 9% interest over a 30 year terms you pay, $804.62 per month. Reduce your interest rate by 3% to 6% and your monthly payments will be, $599.55, a substantial saving!
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.
It is also a way to tap into any existing equity in the property in the case of a large financial problem or purchase, and it is also used as a way to consolidate debt or finances. There are benefits to this as well as pitfalls, and any home owner considering a mortgage refinance should be aware of both these.
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.
The premise behind lower interest rates is saving money! Your monthly payments should decrease quite substantially while still allowing you to build equity in the property. We illustrate how this can be done in this simple example:
This simple example illustrates how this may apply: You have a home loan for $100,000 and at 9% interest over a 30 year terms you pay, $804.62 per month. Reduce your interest rate by 3% to 6% and your monthly payments will be, $599.55, a substantial saving!
