Mortgage Refinancing Can Be Good In Certain Circumstances
There are a number of reasons why a home owner may be considering mortgage refinancing. In some cases this is a good thing and can help a cash strapped property owner who is struggling to repay the underlying loan on their mortgage. But in some instances mortgage refinance is not a good thing, it all depends on the home owners particular circumstances.
A refinance mean that the underlying loan is paid off before reaching term and a new loan is negotiated. There are many reasons for this, to decrease the monthly repayments, shorten the loan term, or convert from and adjustable mortgage rate to a fixed rate and in the process lower the interest on the loan. Sub-prime loans and ARM’s have caused havoc in the housing market in recent years, due to bad landing practices. Home owners with these have lost so much property to foreclosure and banks have lost a huge amount also.
A refinance is one of the ways a home owner is able to access the equity in their property. They may want to tap into it to get out of financial difficulty, or perhaps make a large purchase, say another property. This means is also used to consolidate all debt, so that the loan applicant only has to pay one lump sum monthly. There are benefits and as with everything else, also pitfalls, so it is important to be aware of this.
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.
It is for this reason that any home owner considering refinancing their mortgage, has to determine the reason why, and whether it will be of any real benefit.
The chief reason why any home owner seeks to refinance their mortgage is to lower the interest rates they pay. In general terms if a refinance can lower the interest rate being paid by 2%, this is a good deal. Banks say 1%, but this leaves a very fine line in terms of real savings. Being knowledgeable as to why you want a refinance is imperative.
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!
The author has been in the real estate field for more than 18 years. For more articles like this you should drop by his webpage which covers everything from refinance home mortgage loans to mortgage loans first time home buyer with no credit.