Mortgage Refinance

Welcome to our Mortgage Refinance mini website. Here we provide an analysis of the advantages and disadvantages to mortgage refinance, a listing of national mortgage brokers for the United States, current news about mortgage refinance, and a chat room about mortgage refinance and related topics. As part of an effort to increase the amount of mortgage information at our site, we also provide a mortgage book store. Our book store consists publications about mortgage refinance and mortgages in general. So if you are thinking about doing a mortgage refinance, the information provided here at our site should help you make that decision.

What is mortgage refinance? A mortgage refinance is paying off one loan with another loan which has a lower interest. This involves setting up a new mortgage where the objective is to lock in a fix rate lower interest which is more desirable then the interest your are paying on your current mortgage. If you acquired a variable rate mortgage when you initially bought your home, you would theoretically benefit from locking in a fixed rate mortgage if the current interest rates are low. It is preferable to pay less money to the bank in the form of interest and more money toward the principle of the loan.

If you need to free up cash, a mortgage refinance would allow you to do this by decreasing your payments per month. How would this work? Mortgage refinance allows you to set up new terms for the loan. You can extend the terms of the loan which allows for lower payments per month. You can also pay less interest to the bank per month if you lock in a lower fix rate interest.

But their are also disadvantages to mortgage refinance. Because you are setting up a new mortgage, there will be closing costs, possibly points to pay, lawyer fees, and transaction fees. Certain types of loans have penalty clauses which are triggered if your current loan is paid off to early.

There is another disadvantage associated with a longer term loan which is set up as a mortgage refinance. If the term of the loan is longer then what you are currently paying on your mortgage, even though you are paying a lower interest with the new loan, you could end up paying more total interest when all is said and done and the loan is paid off.

So although there are obvious advantages to a mortgage refinance, the disadvantages must also be considered. A mortgage refinance should really only be considered if a substantial amount of money can be saved by doing the refinance.

Many times people need to free up some cash for expected extra expenses. Such as home improvement, education, medical condition requiring expensive treatments which are not covered by health insurance, a family business which has not been doing well, or any expense where the money used creates a benefit down the road. It is not wise to use the extra money on unnecessary items which depreciate and have no real tangible net return. Of course how you use the extra few hundred dollars available per month is up to you, but most financial experts agree that if you do not have any pressing expenses, the extra money should be used to pay down even further the principle of the loan.

Your mortgage refinance is set up so that you can pay a lower interest rate. This means more of your payment can go toward the principle of the loan, and the loan can be paid off sooner. This allows you to become debt free sooner. There are many advantages to being debt free. Being debt free means, among other things, you will qualify for the lowest interest rates and best terms on any debt you incur in the future. You will also have more disposable income to invest. So lets summarize the advantages and disadvantages of mortgage refinance.

Summary of the advantages to mortgage refinance:

Obtain a lower fixed rate mortgage:
If your original mortgage was obtained when the interest rate was high, you would benefit from acquiring a lower fixed rate mortgage. For example if you obtained a 30 year term loan to buy your home and the loan was for $150,000, at 8% interest rate, you need to pay $1,396 per month, (including taxes, insurance, and Private Mortgage Insurance (PMI) if applicable), and you will pay $246,233 in interest over the life of the loan. If you lock in a fixed rate of 6% by mortgage refinance, and still maintain the 30 year term, your payments would become $1,195.58 per month (including taxes, insurance, and PMI if applicable), and you will pay $173,757 in interest over the life of the loan. The difference between $246,233 and $173,757 is $72,474. As you can see your savings would be substantial. But don’t forget to subtract the closing costs for the mortgage refinance. If the savings are still substantial, then it is worth it.
Allows you to change from a variable-rate mortgage to a fix-rate mortgage:
Although variable-rate mortgages allow for an initial lower interest rate, the fluctuations in the interest rate is stressful to many people. If interest rate is expected to go upward, locking in a fixed rate through mortgage refinance may prove beneficial.
Obtain better parameters on your variable-rate mortgage:
You have the option of negotiating better features on a variable rate mortgage when you refinance.
Build equity in your home at a faster rate:
When you do a mortgage refinance, the interest you pay to the bank will be less which means more of the payment can go toward reducing the principle of the loan. This means the loan can be paid off sooner.
Reduce financial stress by decreasing your monthly payment:
If you refinance for a longer term loan, this means your payments will be less. Although your total interest paid out for the life of the loan may be higher, many people prefer to keep their head above financial water during the life of the loan.

Summary of the disadvantages of mortgage refinance:

Initial costs can be high:
There will be closing costs and transaction fees. Certain types of loans have penalty clauses which are triggered if your current loan is paid off to early. Your lender may charge a number of fees including application, appraisal, origination and insurance fees, plus title search, and insurance. There are also legal costs. These fees can add up to thousands of dollars. Generally speaking, a rule of thumb is, you need at least a half of a percentage point drop relative to your current interest rate, for mortgage refinance to be worth your time and effort. Some experts believe it should be at least one percentage point drop relative to the interest rate you are currently paying.
Clock is reset on your loan:
One of the main disadvantages is that you are back to square one with your loan amortization when you do a mortgage refinance. So even though your interest rate may be lower, the amount you pay in terms of interest to the bank is high compared to the amount you pay to reduce the loan. Only over time will you see an increase in the amount paid to decrease the principle with a concomitant decrease in the amount paid as interest.
Pay More Total Interest if Term is Longer Then Current Loan:
If you do a mortgage refinance, and you set up the term so that it is substantially longer then the term of your current loan, by the end of the loan, you could end up paying more interest.
Waiting for the Interest Rate to go Down:
Because the main reason to do a mortgage refinance is to lock in a lower interest rate, you may need to wait quite a long time in order to make mortgage refinancing worth your time and effort. Interest rates are usually tied in with the economy, but not always.

In order to determine what your monthly payment would be with new terms, and determine if you prequalify with up to four lenders, click the following links:

Mortgage Refinance Tools - Payment Determination and Prequalify

Mortgage Refinance - National Directory of Mortgage Brokers

Using a mortgage broker is your best bet for increasing the probability of being approved for mortgage refinance. The following is a list of sources for mortgage brokers. This list is provided by PersonalHomeLoanMortgages.com.

Mortgage Refinance - Conclusion

What we have provided here are the facts about mortgage refinancing. We are neither for or against mortgage refinancing simply because not all situations are the same. What we have learned is that who you talk to in terms of obtaining mortgage refinancing can make a difference whether or not you are approved. There appears to be a higher decline rate when going directly to a bank or credit union for those individuals who have bad or marginal credit. This is especially true since the Federal Reserve has started to buckle down on banks that were to freely providing loans to people who really could not afford them.

But many of these people who were declined a mortgage refinance, could have been approved if they used a mortgage broker. A mortgage broker knows all the nuances and in’s and out’s of mortgage refinancing, and therefore increases the probability of approval. A mortgage broker has access to many lenders and each lender can have different underwriting guidelines. So whether you have good or bad credit, a mortgage broker can find the right lender for you. But in the end, only you can decide if mortgage refinancing is right for you.

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