How To Refinance

By: Egberto D’Ipoteca

When you refinance a home loan, it means you take out a new loan and use the proceeds from that new loan to "close out" an existing home loan. The reason a homeowner would refinance is that oftentimes, the new home loan will have a better interest rate than the current home loan. This lowers the monthly payments allowing you to pay off your loan sooner by lowering the payments each and every month.

Before you decide on whether to refinance your home loan or not, you must consider four key factors:

If you are going to take additional cash from the equity of your home when you refinance, you can use this cash for buying a new car, home improvements, wiping out credit card balances, or more. You can even use this added cash for investing in stocks, bonds, or mutual funds.

The good thing about refinance applications is that they are processed fairly quickly, especially if you apply for a refinance loan over the Internet. If the loan originator needs some more information from you, they will request it via email or telephone. Most likely, you will be able to use much of the same documentation you used to secure your existing home loan for the refinance. Some additional info required might be proof of consistent payments on your existing home loan, and information on the reasons you are refinancing (i.e. to lower payments or get cash). Be careful - you will incur many of the same charges you paid when you secured your initial home loan - appraisal fees, lender fees, title insurance, etc. But, if the terms are good, it will be worth it to refinance and pay these same expenses again because you will save so much money in the long term.

In many instances, refinancing a home loan is a great way to lower your monthly mortgage payment due to a lower interest reate. And this is the most common reason that people refinance - to lower their payments. A good litmus test for any refinancing consideration is to see if the new interest rate is two points lower than your existing rate. Generally, this will lower your monthly payments as long as you don't take any cash out and increase the principal. All in all, refinancing can save you money and increase your current assets. So talk to your financial advisor or banker today!

Egberto D'Ipoteca is the owner and operator of Refinance Gate, a leading Internet resource for refinance information. For more great loan and refinance info, be sure to visit:

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