Home Mortgage Refinance - What You Should Know

You must have heard of people rushing to refinance mortgages, with the fall in interest rates. Well, this is because taking the home mortgage refinance option is usually a good idea and makes financial sense.

What is it all about?

The whole concept of mortgage refinancing is that you are replacing your old mortgage with a brand new loan. This essentially means that you are substituting your existing debt obligation with a newer debt obligation which has different terms. With this type of refinancing, it is what we called a home mortgage refinance.

It is usually taken by a borrower to pay off the original loan. You also have the option for refinancing a home equity loan, taken earlier.

The types of Refinancing Options Available

Even if you are paying a fixed rate mortgage, refinancing enables you to select a different type of mortgage loan. Some of the refinancing options available in terms of mortgage loan types are described below.

Adjustable Rate Mortgage: If your home mortgage refinance rate is adjustable, then it means that the interest rate is periodically adjusted in conformity with a variety of indexes. In this case you might have to pay a lower interest rate or a very high rate of interest, depending on the financial and economical factors.

Interest Only Mortgage: Herein the payments will not include the principal amount due. You will only have to make interest-only payments.

Fixed Rate Mortgage: Suppose you already have an adjustable rate mortgage, you can still go to a fixed rate of mortgage. Herein your rate of interest is stable and won't have any variations.

Reverse Mortgages: Herein, you will be able to borrow equity on your home if you go for home mortgage refinance. The core idea behind it is that the borrower does not make payment to the lender but the lender makes payments to the borrower. However, only those who are more than 62 years of age can qualify for a reverse mortgage.

The Benefits

A Short Amortization Period: If your interest rate is lower than your previous interest rate, than the term of your existing loan can be shortened. This can be done by making a higher mortgage payment monthly.

Obtain Cash: Many people take the refinancing option to attain cash that they can then invest to get a higher rate of return as compared to the existing rate of interest.

Reduce Monthly Payments: If you don't plan to move out of home soon, you can break even in terms of refinance costs. You can lower your interest rates and monthly payments. This would enable in increasing the monthly cash flows.

A Few Considerations

Bear in mind that due diligence is required to get a fair idea of the financial charges with regards to refinance. You must get all information from your lender and leave nothing to chance or unclear in your mind.

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