What is Mortgage Refinancing?

What is Mortgage Refinancing?
Refinancing as the term suggests, is closing off the existing mortgage loan by taking a new one. There are quite a few reasons as to why home owners want to look at a refinancing option.

The most common ones are:
▪ Getting a lower rate of interest
▪ Changing the type of loan
▪ Availing the benefits of a good credit rating
▪ Building equity faster

As you can see, lowering the mortgage interest rate and in turn reducing the monthly payments is the most obvious reason for a refinance. “Building equity faster” is also popular as owning a house is one of the best, safest and most profitable investments.

Choosing a mortgage
Selecting the right kind of mortgage model is dependent on your requirements and needs. Whatever may be the reason for your refinance option – availing a lower rate of interest or changing the loan type, you must contact several mortgage lenders to understand and get a best deal. All lenders will generally vary in their fees and costs.

The mortgage lenders usually offer a wide variety of interest rates and terms. You can bring down your rate of interest by paying discount points. For instance one of the creditors may offer an 8.75 percent mortgage with one point or a 9 percent mortgage with no points. In a typical situation, lower the rate of interest lesser is the monthly payment (of course this is dependent on the mortgage term); however, in order to keep up front costs low, you may have to choose the higher rate of interest with no point option. Besides there are many creditors who might permit you to finance points and closing costs as a part of the total loan amount. This is called a no-cost refinance.

The type of mortgage you want must depend on the following factors
▪  The time you want to live in the house
▪  The reasons for refinancing
▪ The total amount of monthly payments that you can afford without making any sacrifices to your day to day living.

What are Fixed-Rate mortgages?
A fixed rate interest mortgage has the same interest rate for the whole tenure of the loan. When one refinances into a fixed rate mortgage, there is a general peace of mind that the monthly payments will be fixed for the whole loan term (excluding the variations in the property tax). The loan terms are usually between 15, 20 and 30 years.
There are a few variations in a fixed-rate mortgage:
▪ Biweekly mortgage – a biweekly mortgage allows the borrower to make payments in every two weeks. This obviously leads to accumulate equity much faster.
▪ Balloon mortgage – in this type of mortgage, a low rate of interest is provided for short term financing (generally seven years). At the end of this tenure, you have to either look for refinancing or pay a lump sum amount of the loan. Balloon loans are however not very common.

If you are a homeowner who is looking for a really effective mortgage, InterestFirst Mortgage is perhaps the best solution. This plan offers the benefit of a low and fixed-rate monthly payment. For the first 15 years of the loan, you have to pay only the interest and escrow payments of the taxes and insurance, every month. The payment adjusts at the beginning of the 16th year to cover the principal, remaining interest and escrow payments (if necessary) due to the loan for the next 15 years.

What are adjustable rate mortgages?
Adjustable rate mortgages or ARMs are also common amongst the users. In this plan, the consumer is allowed to refinance according to his choice – when the interest rates are high or when he wants to trade in a higher fixed-rate mortgage for a lower rate ARM. Though the loans terms differ from one lender to another, usually adjustable rate mortgages offers rate adjustment terms anything between one to ten years.