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Understanding the Basics of Refinancing Mortgage Loans

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.

refinancing mortgage loansMany 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.

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Comments

  1. I appreciate your post, Refinancing is very important nowadays. Thanks for sharing. Keep Posted!

  2. What most people don’t realise is that refinancing could save them a lot of money. If you get lazy or forget it can really cost you. My tip is check out your refinance options early and often!
    Great article!
    Oak Laurel recently posted…Are mortgage brokers good? The shocking truth!My Profile

  3. It’s interesting to learn more about refinancing loans. It sounds like refinancing can be really helpful, if it can lock in lower interest rates or change the term rate. I will have to take a look at our finances to see if refinancing might be an option!

  4. Refinancing is very important nowadays! Nice article, hope to hear more interesting posts from you. Thanks for sharing, Keep it up man!
    Alice recently posted…Where’s Daddy Pig?My Profile

  5. Wow! Fantastic stuff !
    This is so chock full of useful information , I can’t wait to dig deep and start utilizing the resources you have given me . Your Exuberance is refreshing.
    I’m thinking about investing in real estate to make some extra income, and to have a fun place to vacation. I really appreciate this information on financing the purchase, especially the info about loan types. What percentage of the time do you have to live in a home for it to be considered your residence? Thanks for the information!

  6. Great article. One more benefit of refinancing is the ability to consolidate multiple loans. This can be great for reducing fees and qualifying for certain deals that require a larger loan amount.

  7. Great information! Thanks for the clear and concise post. You definitely hit on points that many have forgotten and it is so wonderful the way you explained everything step by step with common jargon, easy for all to understand!

  8. Wow!! What a great Information @brian!! Must say..if you are looking to save money on your mortgage, then refinancing is probably an option that you have considered. You will notice that you have two major options when it comes to restructuring your loan. The first is the cash-out choice. The second is the rate-and-term option. Of course, there are other reasons to refinance the terms of your mortgage. You could want to get out of an adjustable-rate agreement.

  9. What great info. Here in Australia there are so many options for refinancing. It’s so important to weigh up the costs/benefits but if you get it right, it is well worth the effort.

  10. I didn’t know about refinancing loans, although it’s a good thing to know about. I would like to have a loan to pay off existing debt that’s tied to my home. I have quite a bit of debt right now and need some help!

  11. If you are paying fees to obtain the loan, it is costing you money to get the loan, which you might not recoup through a lower interest rate for a number of years. To figure this out, add up all the fees.

  12. Thank you for sharing the article. It’s very interesting. Hope to hear more from you.
    Remy Boudreau recently posted…Le refinancement comme solution de financementMy Profile

  13. Nice blog and attractive information. I like your blog and your work.

    • In the commercial mortgage market, the majority of deals are either fixed rate or variable rate.

      • Since most lenders will look closely at your credit history prior to making a decision, keep an eye on your credit score and anything in your credit report that might be a red flag. Remember, most banks will require that you personally guarantee the loan, but if you have sufficient collateral within your business to cover the loan principal, they shouldn’t require a lien on your home.

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