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Mortgage Refinancing

Mortgage refinancing is the process of taking out a new mortgage loan that pays off any existing mortgage you may have on the same property. The term "mortgage refinance", in its most common use, refers to the situation where a new first mortgage is taken out and replaces an existing first mortgage. The term can also apply, however, to a first mortgage paying off both a first and second mortgage, or a new second mortgage replacing an existing second mortgage.

When you refinance your mortgage it may feel like you are buying your house all over again. You will experience much the same process, and incur many, if not all, the same costs. Therefore, it's certainly not a decision one should take lightly, yet it's important to realize that in many cases a mortgage refinance can greatly improve your financial well-being. It's important to do your homework and evaluate whether a mortgage refinance is right for your situation. Armed with the right tools and information, any consumer can be well prepared to tackle the sometimes daunting mortgage refinance process.

Lower my Bills- Mortgage Refinance

Mortgage rates are at all-time low levels. There has never been a better time to refinance and lower your mortgage payment. If you have an adjustable rate mortgage (ARM) you can refinance and get a low fixed rate. You don't need perfect credit to apply.

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Why consider refinancing your mortgage?

Lower your mortgage interest rate Lower interest rates translate into lower monthly payments. If your credit has improved since you took out the mortgage, you may qualify for more attractive rates. Changes in market conditions may also present opportunities for a better rate.

Take cash outIf you are fortunate enough to have built up equity on your home you may consider what is called Cash out Refinancing. This replaces your current mortgage with a new, larger mortgage. The difference between the old and new mortgages is considered "cash out" - money that you can use for whatever purposes you wish.

Consolidate debtsSimilar to Cash out Refinancing - only instead of getting cash in your pocket - use the loan proceeds to pay off your bills.

Change the type or terms of your current mortgageAn attractive option for many consumers is to change from an adjustable rate mortgage to a fixed rate, or perhaps amend their existing adjustable rate terms to be more favorable. Refinancing to reduce the length of a mortgage also results in long term savings. your bills.

When is it worth it to refinance your home?

Many experts suggest it makes sense to refinance if you can get an interest rate that is less than 2% from your current rate. For those with adjustable rate mortgages, it can be advantageous to move into a fixed rate mortgage, or change the existing terms of the mortgage. To many, knowing that the monthly payment will never increase can provide a welcome peace of mind.

What to consider when refinancing?

Having a prepayment penalty on your mortgage can affect your decision on whether to refinance. While only about 2% of normal conventional mortgages have a prepayment penalty, roughly 80% of the subprime mortgages in the U.S. have one. This fee, often up to 5% of the existing loan amount, can offset the savings you can incur in a refinance. If you are planning on moving from your home in the near future, the monthly saving gained from a refinance could be offset by the costs of refinancing.

Finally, the home values in the U.S. have fallen dramatically. This means that most Americans have less equity in their homes than they used to. Consequently, some people may find that the value of their home has fallen to the point where they are no longer in a position to refinance. As a rule, homeowners normally need an 80% loan to value ratio (LTV) in order to qualify for a refinance. The exception for this is the new Making Home Affordable refinance program - which enables homeowners with a conforming loan owned by Fannie Mae or Freddie Mac to have an LTV ratio of up to 125 percent. To qualify for an FHA-insured loan, you'll need a loan-to-value ratio of up to 97 percent. Veterans may be eligible for up to 100-percent LTV.

What is the cost of refinancing?

When deciding whether it is worth it to refinance, remember that most of the costs are the same as when you initially took out the mortgage, and your credit rating will influence the interest rate of your new mortgage. Here are the basic closing costs you may need to pay:

  • Points
  • Application Fee
  • Attorney's fees
  • Title search and title insurance
  • Appraisal fee
  • Local fees, taxes, and transfers
  • Credit check
  • Home inspections
  • Property survey
  • Loan document preparation
When you start shopping to "refinance your mortgage", it's always a good idea to start with your current lender. Your lender will very likely want to retain your business, and consequently may be willing to reduce or eliminate some of the typical refinancing fees. You stand a much better chance of reducing these fees when your mortgage is only a few years old.
As with any major financial transaction, complexities exist. To reach an ideal outcome, consumers need to be aware and informed about the mortgage refinance process.