Search:

Home | Finance | Mortgage
Refinancing Home Mortgage: Understanding Your Options

Are you considering refinancing your home mortgage? You’re not alone these days. The drop in interest rates and turbulence in the housing market has made refinancing home mortgages a very popular option. There are several reasons for seriously considering a mortgage refinance, and each of them suggests choosing a particular option for doing so.

Refinancing your home mortgage for a lower interest rate. Historically, the most common reason for doing a mortgage refinance is to take advantage of a lower interest rate. Over the past several years, home buyers often took primary mortgages with higher interest rates with the expectation that they could refinance when their circumstances changed enough to qualify them for a lower interest rate. This is an especially attractive option for young professionals at the start of their careers who expect to be earning better wages a few years down the line.

Refinancing your mortgage can decrease your monthly payment. There are two ways to use a mortgage refinance to lower your monthly mortgage payment. Obviously, refinancing into a lower interest mortgage will reduce your monthly payments if all other terms remain the same. You can also refinance into a longer term loan. This option reduces your monthly payment by spreading out your remaining payments over more months, making each installment lower. Be aware, though, that refinancing into a longer mortgage may reduce your monthly payment, but it will almost inevitably increase the amount of interest that you pay overall. In fact, moving from a 20 year mortgage to a 30 year mortgage, even at a lower rate, can potentially increase the real cost of your new home by tens of thousands of dollars.

Refinance from an adjustable rate mortgage to a fixed rate mortgage. Many borrowers opt for an adjustable rate mortgage in order to qualify for lower interest rates for the first two to five years of their loan. Historically, this has allowed new home buyers time to build equity in their homes along with building their credit to qualify for lower interest rates on fixed rate mortgages.

Refinancing from an adjustable rate mortgage to a fixed rate mortgage offers one major advantage – your mortgage rate will not change over the entire life of the loan. That means that your mortgage payment will be immune to fluctuations in interest rates, making it easier to budget and manage your money. If interest rates rise, you’ll be saving money. If they fall in the future, you may be in a position to refinance into a lower interest rate.

Refinance your mortgage with a cash-out loan. A cash-out refinance gives you access to cash that’s tied up in the equity of your home. If the current value of your home is more than the amount that you still owe on your mortgage, a cash-out refinance can put cash in your hands when you need it. Essentially, you take out a mortgage for any amount greater than your mortgage and up to the full value of your home. After you pay off your current mortgage and any fees associated with the refinancing, the additional cash is yours to use as you need it. In many cases, lenders are willing to loan as much as 125% of the equity you have in your home.

Do keep in mind, though, that the “extra” cash is not a gift. It’s a loan on which you’ll be paying interest, and can potentially increase the length of time it will take you to pay off your home and own it free and clear.

Refinance your mortgage to finish paying off your home sooner. While most people think of refinancing their mortgage as a way to decrease their monthly mortgage payments or lower their interest rates, there is another good reason to refinance – to pay off your mortgage sooner. If your circumstances have changed since your original mortgage and you can afford to pay a higher monthly payment, it makes good financial sense to refinance into a shorter term mortgage, even if you have to take a higher interest rate to do it. The difference in overall cost between a thirty year fixed rate mortgage and a fifteen or twenty year fixed rate mortgage is substantial. If you’re planning to stay in your home for the long term, and can afford higher payments, you could be out of debt ten to fifteen years sooner and save tens of thousands of dollars in interest payments.

Take advantage of the Making Home Affordable Program for refinancing your mortgage.

Thanks to the economic downturn and the collapse of home prices, many homeowners are ‘underwater’ on their mortgages – owing more on their mortgage than their home is currently worth on the market. That makes it impossible for them to refinance their mortgages, even if they have good credit. The federal government has established the Making Home Affordable program to assist those who are in this situation by making special incentives available to lenders who refinance those loans.

Source: http://easycontentpro.com

Cynthia Andrews is a freelance writer who offers tips about how to refinance home mortgage.

"Refinancing Home Mortgage: Understanding Your Options"
written by Real Estate1

Not yet Rated

 

Click the XML icon above to receive Mortgage articles via RSS


Other articles you may find interesting:

Sign Up for a free account or learn more.
Are you looking for articles in another language? Check out our new special sites!
• Air Freight
• Antenna Booster
• Credit Score
Member Login
Submission Guidelines
Submit Articles
Most Popular Articles
Top Authors
Ezine Notifications
Article RSS Feeds
About Us
Blog
Link to Us
Contact Us
Privacy Policy
Terms of Service
Article Directory Software
Start your own article directory today - Click here to download the exact software that powers EasyContentPro for FREE!

Powered by Article Dashboard