What does it mean when you consider refinancing mortgage loans. Why would a person even consider it? Please welcome Jessica Kane as she shares her insights on the subject.
Many homeowners who have owned their property for more than a year or two have already refinanced a home mortgage. Some of your friends and family members may have casually mentioned that they were in the middle of a refinance loan process, or they may have talked about the great interest rate they got or their plans for their home equity funds.
If you are not familiar with mortgage refinancing, you may be wondering what this actually means, how you can do it and what the benefits would be for you. By spending a few minutes learning more about it, you may decide that now is the right time for you to contact a mortgage lender about refinancing your home loan.
What Is a Refinanced Loan?
When you apply for a mortgage, the lender’s representative will ask if you are buying a new home or refinancing your existing mortgage. A refinance loan is a type of mortgage that replaces the existing debt that you have on the house.
In most cases, a refinance loan will replace both a first and a second lien mortgage that you currently have in place. The loan amount will be based on the current value of the property rather than on the original sales price, so you may be able to obtain a larger loan amount than you could when you purchased the home if the value has increased.
How Does Refinancing Work?
When you initially shop around for a refinance loan, you will be asked what the current property value is and what your total mortgage balances are. The refinance loan will be used to pay off existing debt tied to the home first. The existing mortgages will not be permitted to remain in place, so the lender’s representative will ensure that you have enough equity in the home to pay these balances off.
Then, remaining funds from the refinance loan will be used to pay any closing costs linked to the transaction. This may include a new title policy, an appraisal, lenders fees and other similar fees. Any additional funds available from the loan will be given to you, and you will be able to do whatever you desire with the money.
Why Do People Refinance?
You may be wondering what the main motivation is for refinancing an existing mortgage. There are actually several reasons why people may refinance. Most commonly, people refinance a loan to lock in a lower interest rate. This may result in a lower payment and the ability to increase equity more quickly with each payment. Some will refinance to adjust the term length.
For example, you may have a 30-year term on your existing mortgage, but you may have plans to retire in 15 years. Refinancing to a 15-year term will help you to pay off your mortgage before you retire.
Still others will refinance their home loan to pull equity out of the property. Equity can accumulate from your initial down payment when you purchased the property, principal reduction as you make regular mortgage payments and appreciation in property value. When you speak with a lender’s representative, you will receive more information about the amount of equity that you may be able to tap into through refinancing.
Is Refinancing Right For You?
Refinancing can be highly beneficial, but it is not the right option for everyone. There are costs associated with refinancing, and refinancing will change the amount of your mortgage payment. This can impact your budget, your equity and how quickly you pay off your mortgage debt.
Some people will use the home equity to pay off credit card bills, make home improvements, or even to start a business.
Therefore, while the payment may increase or decrease and there are other effects associated with refinancing, you may still find that it is the right option for you because of how beneficial it can be to have access to your home equity.
Questions: Have you refinanced your home mortgage recently? What was the reason you refinanced? What was the process like?
Author Bio: Jessica Kane is a writer and outreach specialist for Checkworks.com.