Learn about refinancing

Mortgage Refinancing is a process in which you replace one or more existing loans or debts with a new loan, usually secured by the same assets. The most common type of refinancing is for home mortgages. Before you decide to go ahead and refinance, there are a number of facts you need to consider.

Is Refinancing Right For Me?

In most refinancing situations, the borrower does so mainly to reduce the interest cost and replace it with a new lower rate. Before you jump into refinancing, you must determine whether the new loan option will ultimately save you money.
When you purchased your home, there were a number of factors that determined your total principal amount. Credit rating, down payment and the current interest rates were at the top of that list, but these things change over time. It may now be beneficial to refinance with your higher credit score, increase of cash flow and lower home mortgage rates set by the Federal Reserve.

Benefits of Refinancing
The main goal of refinancing should be to lower your monthly payment, reduce your payment period and save you money!
You can now easily apply to refinance your home mortgage and fulfill that goal. For example, you have a 30-year mortgage you’ve been paying since you bought your first home when you were young, had average credit and the market rates were high. It’s now 10 years later and you are feeling locked in to your loan. You have a stable job, a high credit score and the US is in a rate-cutting period. You now have option to refinance! You can change your payment period to 10, 15, or 20 years, saving you thousands of dollars in interest. Because your refinance rate is lower and on a shorter payment period, you can still have the same monthly payment. This doesn’t mean the refinancing was useless. You are now building equity in your home faster as you cut out interest and are paying more on principal.

Payment Traps: Refinancing Can Help
A huge problem that many homeowners face is their adjustable rate mortgage. At the time, interest rates were low and it was a great loan. However, interest rates have risen and your payment is now out of hand. Another trap for homeowners occurs when one buys their home with the intention to sell in a few years. They’ve gotten busy or grown attached and our now stuck in an unstable loan. Refinancing could be the answer for you! You can now switch from your adjustable rate mortgage to a fixed-rate mortgage and protect yourself against fluctuating interest rates. You’ll have more security every month and hopefully, a cheaper interest rate!
Some homeowners may have had to pay an extra fee called Private Mortgage Insurance (PMI). This is required for borrowers who cannot pay 20 percent of the loan for their down payment and the amount financed is greater than 80 percent of the appraised value. If your house has increased its value since your purchase and you’ve consistently made your payments, your home equity may now be above that 20 percent. Refinancing may actually get rid of the PMI payments.

What’s the Catch? It Sounds Too Good To Be True
Be careful with the refinancing option you choose. Certain types of refinancing options contain penalties for early payments as well as closing and transaction fees. Make sure to do your math, as in some cases these extra fees may offset any savings through the refinancing loan.
To help prevent these penalties and determine if refinancing is the right choice for you, be sure to calculate the up-front, ongoing, and potentially volatile costs of refinancing.

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