Homeowners today don’t give a second thought before refinancing their home loan every time interest rates fall. People while trying to refinance don’t wait to consider if it’s a good or a bad idea. Moreover they always fail to look at the bigger picture. Refinancing home loans is a common practice today and you need to look into each and every detail before you take out another mortgage loan. Before we go any further let us understand what refinancing means:
What is Refinancing?
The original loan secured by a buyer to buy a home is called a purchase-money loan while a refinance loan is taken by a borrower to pay off the amount of the original loan. In case of an individual who continuously refinances his loans every time there is a drop in the interest rates (also called as a Serial Refinancer), the new loan pays off the last loan amount.
Serial Refinancers often go about refinancing their mortgages again and again without realising the fact that every time they refinance, they not only keep on adding more principle toward the end of the loan but also extend the term of the loan.
Kinds of Refinancing
With proper study and research, refinancing home loans can become an easy task. It’s possible to take out a different kind of loan at the time you refinance but is very necessary to understand all that is involved (terms and conditions) in the new loan procedure before you apply for a change. Some common loan types are mentioned below:
Interest Only Mortgage.
Option ARM Mortgage.
Adjustable Rate Mortgage.
FHA Loans.
Reverse Mortgages
Drawbacks of Refinancing
Here are a few:
Costs
Are you paying a certain fees in order to obtain a new loan? Well, fee means money, money which you might not be able to recover through a low interest rate for around a couple of years. Relevant calculations are beyond the scope of this write-up. Go online to refer to specific details.
Longer Amortisation Period
Remember that if you refinance a 20 year long loan with 15 years remaining, with another 20 year loan, then you’ve just turned an original 20 year plan to a 25 year plan. You need to take care of such things!
Benefits of Refinancing
Here are a few:
Lower Monthly Payments
If you are someone who is not into planning too much into the future, refinancing may be a good option as it will insure lower monthly payments, i.e. greater monthly cash inflow.
Cash In Hand
Many people obtain cash so as to invest it for a higher rate than the current interest rate. Hop online to read detailed documents on the procedure of refinancing and make better decisions while getting home loans.
By: Michel Disusa
Posts Tagged ‘Mortgage Loan’
Refinancing Home Loans – An Introduction
April 18th, 2010Mortgage Refinancing Loan – A Way Out of Your Financial Problems
April 6th, 2010
For many homeowners and ordinary people who have financial problems, mortgage refinancing loan can give you the way out. With the recent recession and economic downturn, many homeowners lost a lot of value or equity on their houses. But this does not deter any one from trying to qualify and get their home loan refinance and to use the money for their financial needs.
While refinancing loans can be a way out of your debt problems, you need to understand that you need to get approved for this type of borrowing. You need to have a good to excellent credit score or credit history in order to get a more favorable interest rate on the a refinanced loans. The interest charge on this type of borrowing depends on the borrower’s credit history and credit score so you need to fix that aspect first in order to get the best rate and do not get into more debts and financial woes.
You also need to have equity on the house so that you can use that as a security for the loan that you are trying to get. In order to get your home mortgage refinanced, you need to have enough equity on the house so they can basically let you get new mortgage loan. And this new mortgage loan to extend the number of years in which to pay your mortgage.
For many people and homeowners, it is indeed a good option to do when you are in a financial crunch. You can use the money to pay off debts and other overdue bills. It is convenient to do and easy as long as you are qualified to get approved for a mortgage refinancing loan.
There are two main types of interest rates when getting home loan refinancing. One is the so called fixed interest rate which is self explanatory. And the other type is variable interest rate. Variable interest rate is good for people who have the stomach and money to deal with the fluctuations of interest rates. It is basically designed for people who would like to take advantage of getting a better deal when rates are favorable. While the fixed type is that you are going to pay the same rate until the loan is fully paid off.
But you need to remember that getting mortgage refinancing loan has other fees and costs associated with this borrowing. So make sure that you understand all these other costs that are associated with and make the determination if it is worth it. Otherwise you might end paying more than what you are getting.
By: Julie Viola