Features of Home Refinancing

Refinancing your home is one of the best things you can do to get a lower interest rate on your existing mortgage. All refinancing means is that you take out a secured second loan on your existing loan, and the second loan replaces the first loan. One of the most typical reasons people choose to refinance their homes is because they're unhappy with the interest rate on their existing loan,

For example, say an individual has a fixed interest rate of 9% on their first home mortgage loan of $300,000, but the interest rates have dropped to a low 4%. They might refinance because it would save them hundreds of dollars amonth. Generally speaking, it is a good idea to refinance only if the market percentage is at least 2 or 3% below the current interest rate on your home.

People also refinance for other reasons besides a lower interest rate; perhaps they have large medical bills, student loans, credit card balances or other high-interest debt. Refinancing saves them hundreds of dollars a month that could go towards these loans. Refinancing is also an excellent option if you have an adjustable rate mortgage (ARM) and want it to remain steadier. In this case you could refinance with a lower, fixed rate and different terms.

Before you refinance, shop around and find the best deal possible. There are numerous options available for those looking to refinancetheir homes. Keep in mind that rates and terms vary depending on the are a you're in, its tax laws, and other specifics. For this reason, it's always agood idea to consult with a financial advisor or certified mortgage consultant.

Also be careful about when you mortgage and why. If you havea low fixed rate already, it may not be worth your while to refinance. There are positive and negative aspects of both fixed interest rates (FRM) and adjustable rate mortgage (ARM) so be aware and do the research to determine which is right for you. Generally speaking, ARM's can save you more in the short term, and are thus best for those planning to refinance for less than five years. A FRM is generally more secure and better for those with longer term loans.

Benefits of Home Refinancing

Here is a recap of the benefits that are available to you as a homeowner if you choose to refinance your home:

  • Lower interest rates. This means the amount you pay each month for your mortgage is reduced, and you have more money free for other things.
  • Variety of loan length options. While the most common mortgage loans come in 15, 30, and 40 year terms, you have other options as well. Talk to your lender and determine what term works best for you.
  • Choice of adjustable rate mortgage or fixed rate mortgage. You can choose which option works best for your situation.
  • More financial freedom. This means more money can go towards college tuition, medical bills, auto loans, or other types of debt. Or perhaps it means you can finally take the trip you've always wanted.

Possible risk reduction. Refinancing gives you lower payments each month and can offer a slow, steady payment option, like a fixed rate mortgage (FRM), that makes is less risky than other options, such as an adjustable rate mortgage (ARM).

To learn more, visit our Refinancing Tips and FAQ