Mortgage Refinance – Things To Consider Before Refinancing Your Home Mortgage


If you are considering a mortgage refinance, there are a few things you should know before making a decision.

Why do some people decide to refinance their mortgages? Interest rates can vary drastically over the years you plan to live in your home. If the mortgage rates are lower now than when you first bought the house, then refinancing might be a good idea.

You also might want to consider refinancing if you have an adjustable-rate mortgage, and the rates are lower now than they are likely to be in the future, or at least for the duration of the time you plan to live in your home.

Refinancing an adjustable-rate mortgage and switching over to a fixed-rate loan may give you a better sense of security because you will know your interest rate for the entire life of the loan.

However, don't be too hasty when it comes to refinancing a mortgage. It can be a good way to save money in certain circumstances, but it is not the best idea for everyone.

The first thing you will have to do when refinancing a mortgage is pay a lot of fees, and you may want to consider how much you think you can save with a new interest rate versus the fees you will have to pay upfront to refinancing. The mortgage refinance process is very similar to the process you went through to receive your home loan to begin with.

Essentially, a mortgage refinance is the same as taking out a new mortgage, with all the hassle included. You will have to pay for the lending institution to process your application and check your credit report, and after that you will have to pay the company's lawyers and examiners to verify your ownership, as well as to determine the market value of your home.

Because of the fees you will have to pay throughout the mortgage refinance process, which may total up to $3,000, you may not see savings from new interest rate for another 2-3 years. For this reason, mortgage refinancing may only be worthwhile if you plan to live in your home for at least five more years.

Be aware that under this plan you will also have to pay up to 3% of your existing loan, along with a prepayment penalty. Your current lender charges this penalty for hiring another company to buy out your loan, and though its size will vary with different mortgages, it may be large enough to completely negate the savings you plan to receive from a mortgage refinance.

If you are considering a mortgage refinance, consider the costs and go to your current lender first to discuss your decision. They may be able to help you reduce your payments or adjust your interest without the cost of a complete mortgage refinance.

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