Refinancing Your Home

Refinancing Your Home
By Mark Bennett

Mortgage Refinancing

Homeowners can benefit from a lower refinancing rate by freeing up cash that can be used on much crucial expenses. But mortgage refinancing is not just a way to cut your monthly housing bill. Mortgage refinancing can be a great decision for some people, but it can have a dark side if consumers don't look before they leap. Whether mortgage refinancing is a good debt or bad debt, to borrow Robert Kiyosaki's terminology, depends on what you are doing with the funds.

Interest

Make sure you ask for loan quotes from more than one lender. These loan quotes will enable you to judge how competitive your lender's rate of interest is.

If you are paying, or are offered, a variable or adjustible rate mortgage, you must study carefully how the lender changes the interest rates and the criteria which it is following. Payments for principal and interest will be consistent throughout the life of the loan if you are using a fixed rate mortgage.

Home equity lines of credit are convenient, for people with changing plans. HELOC's can improve cash flow because only the interest is due on the portion of the line that you actually accessed. The most important thing is lower payments, but this is often determined by interest rates - simple interest is the easiest way to go.

You can potentially save thousands of dollars over 30 years and also lower your monthly payments by consolidating multiple loans. Whether you are paying on credit card debt or opting for home improvement projects many people advise a fixed interest second mortgage as opposed to a home equity loan. A second mortgage could be added to your first mortgage, if you were to go through the same lender, but the fees and interest will change.

Refinancing Options

You can extend the term of your mortgage and reduce your monthly repayments. Cash out refinance is very popular in California, as it allows borrowers two-fold benefit, of low interest rate and ready cash. Cash out Refinance is a very handy device for those who find themselves in deep financial trouble which might arise because of unforeseen events.

There are costs associated with refinancing. These are calculated based on such considerations as tenure, down payments and processing costs. An evaluation of the current loan and all costs involved in refinance are vital to calculate payments and interest and determine if the refinancing is profitable.

When mortgage interest rates plummet, homeowners flock to refinance their mortgage, and naturally so. The reasoning behind most refinancing is that getting a lower overall interest rate will affect the long-term mortgage balance. Remember, if at any point you are dissatisfied with your refinance loan provider, you can scrap the deal and start again with another.

Equity

Equity is a term that describes the value of the home minus any mortgages or liens that are being held against it.

Home equity is a powerful way to consolidate your debts. All financial decisions need to be approached with caution, but when dealing with a home a person needs to be doubly cautious. The amount one can borrow in refinancing from a second mortgage is determined by how much equity is in your home.

Financial experts say that getting home equity loans is the better option at this point because the rates will be cheaper. This may be so, but in a falling market, that equity is your safety net.
If their equity is taking a hit, some homeowners might try to refinance their entire debt to a secure fixed interest rate. Some homeowners are accepting higher interest rates from a 30 year fixed rate mortgage for the security of locking in the interest rate. In some cases, refinancing is the only option to prevent foreclosure.

Costs

Refinancing costs may include, but are not limited to, appraisal fees, application fees, loan origination fees and a host of other expenses. These costs can be quite significant. The general guideline for recouping refinance costs is to keep your mortgage for at least seven years. But with cash out refinancing the closing costs have to be paid while those are not a part of a home equity loan.

Subprime Mortgages

The main use of bad credit mortgage refinancing is applicable for those who have bad credit standing, considerable high interest card debt and a home with equity. Homeowners get to benefit from a lower refinancing rate by freeing up cash that can be used on much crucial expenses. The other nice benefit to mortgage refinancing is that it will often provide you with a large amount of extra cash.

On the other hand, you can find yourself facing higher repayments, and running up those credit cards all over again, if you are not very, very careful