Many people would like to refinance mortgage loans but do not know where to start or find that the prospect of dealing with mountains of paperwork and applications is off-putting.
In the right circumstances, refinancing can be a wise choice despite more difficult times in the financial sector. A low refinance mortgage loan can mean that a borrower will get better rates which can put more money back into his/her pocket or be able to raise funds to finance home-improvements.
Refinance Home Mortgages – Shop Around
Shop around for quotes: Don’t respond to the first TV or newspaper ad that seems to offer a good deal. Even if the competition shaves off one quarter of a percent over another lender, this can represent thousands of dollars over the term of the loan.
Borrowers should not feel overly loyal to their lender if it means they can get a better deal elsewhere. A home owner should compare online to find the best refinance mortgage lender or ask a mortgage broker to shop around on his or her behalf.
While it sounds great to get a lower interest rate, this might not be in the best interest of the borrower once all the costs are taken into account. For example, if a borrower spends $5,000 in application and closing costs to refinance the loan and saves $100 per month on repayments, the break even point will be after 50 months (over 4 years later). If borrower’s house is sold during that time, refinancing would not have been worth it.
An individual interested in mortgage refinance should look carefully at all the costs and fees involved before signing on the dotted line. Sometimes this differs significantly from what the borrower was led to believe in the beginning.
Some unscrupulous mortgage lenders try to tack on various small fees on the final documents to generate extra income on the loan, hoping that the borrower will not check the good faith estimate. Some extra fees can be charges for “document preparation” or an extra charge for obtaining credit reports.
A Refinanced Mortgage is a New Loan
Refinance home mortgages means a whole new loan. The previous loan will be canceled. Although this often means that monthly mortgage payments are often greatly reduced, adding 10 years to an existing home loan will not save money in the long run, even though repayments may be less now.
Interest on the loan will be compounded over the term of the loan. Don’t be tempted to refinance an existing mortgage and take out a longer term unless it is absolutely necessary, for example, if financial difficulties necessitate a reduction in monthly payments.