Home Purchase FAQ

What exactly is mortgage refinancing?
Mortgage refinancing refers to the change of your current mortgage or house loan over to a different mortgage with a new interest rate. People usually refinance their homes in order to pay a lower interest rate because the market interest rates have gone down since their original home purchase. By changing over their mortgage and "refinancing," they are able to save money and pay less per month than they did before. Money saved by refinancing can then be used to pay off higher interest debt like credit cards, or go towards other bills, such as tuition.

When should I refinance?
There is no set answer for everyone, but you should typically consider refinancing if rates are two or three percent less then when you purchased your home. Another factor to consider when looking at the ideal time to refinance is how long you plan on living in your home. If you plan on moving in less then a couple of years, you may not want to refinance; closing costs and other fees may not be worth the trouble for so short a time.

Where can I determine how much I'll save by refinancing?
There are many mortgage calculators online, including (put calculator here), that will help you compute exactly what you'll save by refinancing your mortgage.

What types of mortgages are available for refinancing?
The same mortgage options that were available on your initial home purchase are available for refinancing your mortgage: fixed rate mortgages (FRMs), and adjustable rate mortgages (ARMs).

Should I choose to refinance with a fixed rate mortgage or an adjustable rate mortgage?
That's a difficult decision to answer in a FAQ. Read through the FAQ for both fixed and adjustable rate mortgages and look into your options. Generally, what makes fixed rate mortgage a good choice is it's absolute predictability, enabling you to correctly judge your monthly payments. An adjustable rate mortgage takes a bit of gamble on the future of the index and should be considered carefully; your monthly payments will fluctuate along with the interest rate, and this is risky.

What fixed rate mortgage options are available for refinancing?
Fixed rate mortgages usually come with the following options: 15 year, 30 year, and 40 year terms. The shorter the life of the mortgage, the lower the interest rates are; unfortunately, this also means higher monthly payments and a larger down payment will be required. The most common term for a fixed rate mortgage is 30 years.

How do ARMs (adjustable rate mortgages) work?
An adjustable rate mortgage is one in which the interest rate changes periodically throughout the loan. The rate usually adjusts automatically in relation to a specific index. When the rate of the loan adjusts, your monthly payments will change accordingly. Make sure to read all the specific details of the ARM and calculate some sample increases. Some ARMs put ceilings on the payment increases or interest rate that the loan can accrue.