Mortgage Refinance Guide
- Christopher BrendanAuthor
- Mortgage TypesCategory
Mortgage Refinance Guide
When a mortgage payment or rate is too high, often times borrowers look to refinancing. When you take out a new mortgage to replace the old one, it is called refinancing. Those with variable rates and good credit can attempt to go from a variable mortgage rate, to a mortgage loan with fixed rate terms. However, borrowers who have lower credit scores or bad credit risk getting stuck with higher rates when refinancing. Most homeowners choose to refinance once they have equity in their home, which means that you owe less to the mortgage company than your home is worth.
A main and popular advantage to refinancing is a reduced interest rate. Making mortgage payments on time often has a very large positive effect on a credit score. With a newly improved credit score you can often secure a much higher rate. With a lower interest rate, your monthly payments are also decreased, resulting in a savings of up to thousands of dollars a month.
Another advantage to refinancing is to obtain money for large purchases. Some homeowners refinance to obtain funds for remodeling, home improvements, and even cars or to pay off debt. This is referred to as taking out a home equity line of credit. To calculate a home equity line, first a home is appraised. A lender will send a home appraiser to your home to value the home. Second, the mortgage lender will determine how much of a percentage of that appraisal they are willing to loan you. Lastly, the balance owed on the original mortgage is subtracted from that amount. After that amount has been used to pay off the original mortgage, the remaining funds are loaned to the homeowner.
A homeowner who has spent money upgrading and/or remodeling their home is more likely to receive more funds through a home equity line due to the increased value of the property from what it was originally worth.
If you currently have a home equity line of credit you stand to incur possible penalties as a result of paying down your existing mortgage. In many mortgage agreements there is a provision that permits a mortgage company to charge you a fee for doing this. Unfortunately these fees can amount to thousands of dollars. Before deciding to refinance, be sure to calculate the cost of fees, and to determine whether or not the loan amount covers these fees. In addition to these fees there are bank and lawyer fees as well to consider. To avoid bank fees, it’s best to comparison shop, shop around for the best fees and offers.
How Do I Begin?
The first thing to consider when attempting to refinance is to establish how you will repay your new loan, and if you can afford it. For example, if you are taking out a home equity line of credit to pay to remodel your home with the intent to increase overall home value, you could consider the new resale value of the home as the way in which you will repay your equity line debt. If you are using the funds to pay for a car, education, or other expenses you should document how you will budget your funds to repay your debt.
When you have determined how you will repay your debt, it’s time to begin shopping around for quotes and comparing mortgage rates and fees to secure the best deal. You can request a free mortgage quotes from up to five lenders right from our Home Sweet Lender website. Request your personal refinance quote here today!