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Clarification on Refinancing your Mortgage

Posted by  on Apr 16, 2009
 
When you bought your home, the interest rate may have been high and thinking it was going to increase, you locked in your mortgage for five years. But how does one refinance intelligently? There are many myths and half truths about refinancing and navigating through them may seem difficult. Many people have the idea that mortgage refinancing is only used in cases where you are in financial difficulty and need money. Through refinancing, you can clear up any arrears you have on your payments and get a little bit of extra cash to pay on other bills. While this is possible with mortgage refinancing, this is something that is quite common. By refinancing the mortgage on your home, you can actually save money in lower monthly payments and pay the home off in a shorter period of time.

If you are considering refinancing your mortgage, it is important to know the procedure because there are costs involved. Most importantly, you must choose the right plan for you. A major factor to look at is the current interest rate. When the interest rate takes a nosedive, you can save money by refinancing at a lower rate. Even though you will have to pay more fees, the money you save will far outweigh the extra costs.

When refinancing, although it could be convenient, you do not have to go back to the financial institution that handles your mortgage. There are many companies that will happily take over your mortgage for you. All you have to do is apply online and possibly receive a better deal from a different lender in another state that what you are currently paying.

One option you could consider in mortgage refinancing is an interest only mortgage, depending on your financial circumstances and where you live. This type of mortgage, allows you to pay only the interest each month for a specified period of time, usually two or three years. The following year, the mortgage payment includes the principal and the interest. At the end of the term of interest only, your home may be worth a lot more than you paid for it and you can sell, making a lot of money.

If you wish to enroll in an interest only mortgage refinance, you have to make sure that the price of your home on the real estate market will rise. You will not accomplish anything if at the end of the interest free period your mortgage is more than your home is worth. Plan your options, so you know what you are going to do at the end of this period and research the housing market.

Remember, there are also fees associated with mortgage refinancing. It is always a good idea to contact several lenders or mortgage brokers to find the one that can offer you the best deal. It is easy to do this online with so many lenders having a website where you can apply from the privacy of your home. Happily, the days of making an appointment at a bank are gone and you don’t have to talk to anyone until you are ready to make the deal. Whenever you decide that refinancing is the right option for you, don’t rush into it with rash decisions. Take your time and weigh all your options.

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