Morgage Refinancing

Morgage Refinancing Guide

Free Morgage Refinancing Info

v	Morgage Loan Refinancing Guide

Morgage Refinancing means paying off an existing loan and replacing it with a new morgage loan. There are many reasons why people refinance a morgage:

the opportunity to lower the morgage's interest rate
the choice to shorten the term of their morgage
the opportunity to convert from an adjustable rate morgage (ARM) to a fixed rate morgage, or vice versa
the ability to tap a home's equity in order to finance a large purchase
the desire to consolidate debt

Morgage Refinancing Info

So, you are thinking about morgage loan refinancing - but why? Historically, the rule of thumb was that it was worth the money to refinance if you could reduce your interest rate by at least 2%. Today, many lenders say 1% savings is enough incentive to refinance. Reducing your interest rate not only helps you save money, but increases the rate at which you build equity in your home, and can decrease the size of your monthly payment. For example, a 30-year fixed-rate morgage with an interest rate of 9% on a $100,000 home has a principal and interest payment of $804.62. That same loan at 6% reduces your payment to $599.55. (To learn more about the home costs, see morgages: How Much Can You Afford?, Home-Equity Loans: The Costs and The Home-Equity Loan: What It Is And How It Works.) Shortening the Loan's Term When interest rates fall, homeowners often have the opportunity to refinance an existing loan for another that, without much change in the monthly payment, has a shorter term. For that 30-year fixed-rate morgage on a $100,000 home, refinancing from 9% to $5.5% cuts the term in half to 15 years, with only a slight change in the monthly payment from $804.62 to $817.08. Converting between Adjustable-Rate and Fixed-Rate morgages While ARMs start out offering lower rates than fixed-rate morgages, periodic adjustments often result in rate increases that are higher than the rate available through a fixed-rate morgage. When this occurs, converting to a fixed-rate morgage results in a lower interest rate as well as eliminates concern over future interest rate hikes. Your home can be a source of extra financing to help meet your goals, whether you want to renovate or repair your home or help pay your child's college or university tuition.

Refinancing your morgage* can be advantageous, particularly if you're planning a major renovation. You may be able to borrow up to 90% of the value of your home, less the outstanding balance of any existing morgage. Most people immediately think of morgage refinancing when they need to renovate their home, but there are other Options for Extra Financing Personal Loan An installment loan that lets you know exactly how much your payments are going to be over a fixed period of time. Personal Line of Credit A good option if you're a new homeowner and haven't had time to build up equity in your home. Homeowner's Line of Credit If you have accumulated equity in your home, the Homeowner's Line of Credit may be the right option for you, and at a variable interest rate, it is generally our lowest personal loan rate available. Home Equity Loan Plan To borrow a larger amount of money for major home renovations, use the equity in your home with this fixed rate instalment loan. Conversely, converting from a fixed-rate loan to an ARM can also be a sound financial strategy, particularly in an falling interest rate environment. If rates continue to fall, the periodic rate adjustments on an ARM result in decreasing rates and smaller monthly morgage payments, eliminating the need to refinance every time rates drop. Converting to an ARM may be a good idea especially for homeowners who don't plan to stay in their home for more than a few years. If interest rates are falling, these homeowners can reduce their loan's interest rate and monthly payment, but won't have to worry about interest rates eventually rising in the future. You've taken the leap and decided to buy a home. After signing a mountain of paperwork, you are now the proud owner of your own residence. Thirty days later, when the first morgage payment comes due, you are hit by the reality of what you have done. You have taken on 30 years' worth of massive payments in an economy that makes no promises about long-term job stability. In this article, we look at the benefits of paying off your morgage as soon as you can and give you pointers on how to do it.

Why Pay It Off? The first and most obvious reason to pay off your morgage as soon as possible is that it will save you tens of thousands of dollars. Read the papers you signed when you bought the place. Take a close look at your amortization schedule. The morgage companies disclose right up front that you will pay more than twice the purchase price of the home before you actually own it. (To learn more about the amortization schedule, see Understanding the morgage Payment Structure.) morgage refinancing In order to make intelligent choices about refinancing your morgage, it is important to become an informed consumer. This page will provide basic information that should prove very useful when considering refinancing your home loan or mortage. Although it cannot provide every answer to every question is will give you the basic groundwork so that you can make educated decisions. Should you refinance your morgage? There are a number of situation wherein refinancing your morgage can be quite beneficial. These situations include: if you purchased your home at a time of higher interest rates and are now considering refinancing at lower rates. Something to note is that you should only refinance at this time if you will retain the home long enough to recover the refinancing costs. if your current mortage is an adjustable-rate morgage (ARM) and you would prefer to have a set monthly payment schedule so that you can better plan your finances. if you would like to convert to a morgage that offers other features that your current morgage does not provide. if you want to increase the rate that you build equity in your home by increasing your payments and thus reducing the length of time of the morgage and the interest that you will pay on the loan. if you wish to remove some of the equity that you have invested in your home for a downpayment on another property or for another large value purchase or investment.

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morgage refinancing costs vary - there are a number of fees or costs that you will most likely incur during the refinancing of your morgage. These fees may or may not include: an application fee - this is a charge levied by the lender that covers the initial cost of all the paperwork and processing required to initiate your morgage refinancing application. This will often include things like checking your credit history. title search fee - the lender must do a title search in order to determine that you are the rightful owner of the property and that there are no unknown leans against the real estate. title insurance fee - this is the cost of the policy that protects the lender in case of discrepancies in the properties title. appraisal fee - this covers the cost of having an appraiser determine the fair market value of the property that the refinancing is being done on. The second reason is the peace of mind you gain from owning your home. With the lower monthly cash outlay requirement, the prospect of unemployment or underemployment is no longer so daunting. You can now afford to take a job that pays a whole lot less than your previous position without any concerns about losing your home. However, many people argue that paying off your morgage is a bad financial move. They claim that you will get a higher return in the long run if you invest your money instead of making extra morgage payments. While there is some chance that you will achieve such a feat, there's also a chance that you won't. Given the choice between a guaranteed savings of the 6% interest on their morgage (compounded for 30 years), or the possibility of achieving some other rate of return (which may be higher or lower), conservative investors will take the safe bet. Of course, the entire argument is moot when you truly look at the facts of the situation. Most people buy a home so they have a place in which to live. Even if it doubles or triples in value, they aren't going to sell it, and if they do, it will take every cent they earn to buy a comparable home in the same neighborhood. Besides, since you can't live in a mutual fund, most home shoppers don't make their purchase in an effort to beat the return of the S&P 500. The next argument against paying off your morgage is even more dubious, but you hear it all the time - even from sophisticated investors. "morgage interest provides a tax break!" Yes, it does. You spend $1 in interest to get a $0.35 tax break - if you are in the highest income tax bracket. It's not a good return on your investment. Paying off your morgage provides a return on your investment that is much more reliable than anything the stock market can offer. It also saves you tens (and sometimes hundreds) of thousands of dollars. To top it all off, it provides the security of having an affordable place to live in the event that your income declines. With all of these benefits in mind, it's time to look at the strategies that will help you pay off that morgage.

Plan Before You Buy Look before you leap! Do the math in advance to determine how much house you can afford to buy; then buy less house than you can afford. This strategy will ensure that you have adequate cash flow to make extra morgage payments and will provide some cushion should you have to take a lower-paying job at some point in the future. Also, make sure that your morgage does not impose a penalty for prepayment. This clause can put a damper on your efforts to get out of debt. (To learn more about the home costs, see morgages: How Much Can You Afford?, Home-Equity Loans: The Costsand The Home-Equity Loan: What It Is And How It Works.) Next, you need to pay attention to the financing terms. While adjustable-rate morgages offer lower initial payments, they are used all too often to enable buyers to get into homes they cannot actually afford. When interest rates rise, some homeowners are caught unprepared. Similarly, homebuyers often plan their finances based on the idea that their morgage payments won't change. They discover this isn't always true when their local government raises real estate taxes. If your plan is to get out of debt as quickly as possible, a fixed-rate morgage provides the predictability of a steady interest rate, and it can always be refinanced if rates fall. (To learn more about morgages, see morgages: Fixed-Rate versus Adjustable-Rate.) How to Pay Off a morgage Once you have a morgage, the key to paying it off is simple: send money. Some morgage plans offer a bimonthly payment schedule, which results in one extra payment per year. It's a great strategy, unless there is a fee associated with it. If there is, simply set aside some cash and make an extra payment on your own. Refinancing Your Current morgage Do you need a little extra money to help you with some of your short or long term goals? Is it time to review your current borrowing situation? These calculators and articles are a great way to learn more about the morgage options that are available to you. Using a payment calculator can help you when refinancing your morgage! Related Tools & Calculators Payment Calculator

Calculate payment amount, amortization, morgage amount and more. Comparison Calculator Compare two morgages and determine which features best suit your needs. Product Selector Determine which morgage solution may be more suitable for you. What Can I Afford Find out what you may be able to afford. If your career advances over the years, put those raises and bonuses to work by sending them to the morgage company. You were doing just fine without that money, and you won't miss it if you don't get used to having it in your budget. Keep an eye on interest rates and, if they fall, consider refinancing. If you can reduce your interest rate, shorten the term of your loan or both, refinancing can be an excellent strategy. Just don't make the mistake of keeping your term the same and taking money out. (To learn more, see morgages: The ABCs Of Refinancing.) Get Started Now There's no time like the present to begin your quest to pay off that morgage. Start by reading your amortization schedule. Once you see exactly how much of your monthly payment goes to interest, and what a tiny portion goes toward paying off the principal, you will realize that every extra dollar you send reduces the portion of your payments that services your interest expense. It's a powerful motivator for financially savvy individuals. If you focus your efforts on the task at hand, you may be surprised at how quickly you can retire a morgage. With your mission accomplished, you will find that the comforts of home are even more pleasurable when it is you - not the bank - who owns the home. Tapping Equity and Consolidating Debt While the previously mentioned reasons to refinance are all financially sound, morgage refinancing can be a slippery slope to never-ending debt. It's important to keep this in mind when considering refinancing for the purpose of tapping into home equity or consolidating debt. Homeowners often access the equity in their homes to cover big expenses, such as the costs of home remodeling or a child's college education. These homeowners may justify such refinancing by pointing out that remodeling adds value to the home or that the interest rate on the morgage loan is less than the rate on money borrowed from another source. Another justification is that the interest on morgages is tax deductible. While these arguments may be true, increasing the number of years that you owe on your morgage is rarely a smart financial decision, nor is spending a dollar on interest to get a $0.30 tax deduction. Many homeowners refinance in order to consolidate their debt. At face value, replacing high-interest debt with a low-interest morgage is a good idea. Unfortunately, refinancing does not bring with it an automatic dose of financial prudence. In reality, a large percentage of people who once generated high-interest debt on credit cards, cars and other purchases will simply do it again after the morgage refinancing gives them the available credit to do so. This creates an instant quadruple loss composed of wasted fees on the refinancing, lost equity in the house, additional years of increased interest payments on the new morgage and the return of high-interest debt once the credit cards are maxed out again - the possible result is an endless perpetuation of the cycle of debt.

Should You Refinance? Refinancing can be a great financial move if it reduces your morgage payment, shortens the term of your loan or helps you build equity more quickly. When used carefully, it can also be a valuable tool in getting your debt under control. Before you refinance take a careful look at your financial situation, and ask yourself: 'How long do I plan to continue living in the house?' and 'How much money will I save by refinancing?' (For more information, see The True Economics Of Refinancing A morgage.) Again, keep in mind that refinancing generally costs between 3% and 6% of the loan's principal. It takes years to recoup that cost with the savings generated by a lower interest rate or shorter term. So, if you are not planning to stay in the home for more than a few years, the cost of refinancing may negate any of the potential savings It also pays to remember that a savvy homeowner is always looking for ways to reduce debt, build equity, save money and eliminate that morgage payment. Taking cash out of your equity when you refinance doesn't help you achieve any of those goals.

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