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.