You may have heard a number of ads for refinancing on television, on radio and even on the Internet. Yet, you still might have questions about how the process actually works and whether it would be a good bet in your case. Consider this then, your primer on mortgage refinance made easy.
When Refinancing Is The Best Option
To begin with, it might be helpful to discuss definition of terms. The act of home refinancing involves applying for a secured loan to pay off a loan that has already been secured with a piece of property or other assets. If your initial loan had a high interest rate, it only makes sense that you would be interested in a loan with a lower rate of interest.
The most common type of mortgage refinance comes in the form of a second home loan. In order to determine if such a loan is appropriate in your particular case, you first need to ascertain whether you'll be saving more on interest than you'll be paying out in refinancing fees. As an added bonus, you may find that you can obtain additional cash while decreasing the amount you need to spend on your mortgage payments. Home refinance loans can be an attractive option because it allows you to use the equity in your house to your best advantage.
Solving the Interest Rate Puzzle
It's important for you to understand how rates on home purchases are determined. The rate you pay is customarily based upon the prevailing interest rate, along with other considerations such as the amount of your down payment and your personal credit rating. Interest rates can fluctuate, based upon the decisions of the Federal Reserve Board. When you refinance, you trade a higher interest rate for a lower rate and decrease your monthly payment in the process.
Cutting the Length of Your Loan
It's also possible to reduce the length of your loan through refinancing. With a mortgage refinancing plan, you can change your term from a 30-year period to a ten or 15-year period. In the process, you can save a substantial amount of interest. If you keep your same monthly payment amount but obtain a lower interest rate, you will be paying more on the principal of the loan each month, allowing you to enhance the equity in your home.
You can also use your home to obtain debt consolidation in the form of a home equity loan. This enables you to combine your high-interest loans to create a single loan with lower interest and a manageable down payment. Your property acts as security for the loan. Until you pay off the home equity loan, the lender will have a lien on your home. With such a loan, you can be protected from creditors and avoid the problem of having to declare bankruptcy.
A Noteworthy Tax Advantage
One important thing to keep in mind about home equity loans is that the interest on such a debt consolidation loan may be tax deductible. Check with your tax accountant to see if your interest can be fully deducted. You may be pleasantly surprised at the answer.
Rebuild.org brings you the latest news headlines related to Home Refinance:
- FHA Short Refinance
The FHA is allowing mortgage companies to refinance underwater loans if they agree to forgive at least 10 percent of the principal.
[September 7th, 2010]
- Can’t Refinance? Might As Well Short Sale and Get $3,000 Cash?
There is a certain group of homeowners who have more or less accepted that they are not going to be able to refinance, and will at a 90 percent rate of probability have to move out of their homes within the next six months. No central agency has a reliable number on how many homeowners are [...]
[April 28th, 2010]
- New Bank Legislation Shouldn’t Change Refinancing Too Much
Nowadays, whenever an important piece of legislation appears imminent, as is the case this week with Senator Dodd’s banking reform bill as the main topic of Congressional conversation, many individuals look at the new law in a “What’s in it for me?” manner. Whether this is the best attitude or not is irrelevant to the [...]
[April 25th, 2010]
- Refinance Ratios Boosted by Improved Employment Figures, New Short Sale Policy
As anyone who has ever refinanced a mortgage can attest to, the word “ratio” is a major part of the refinance equation. Mortgage brokers talk about “front end” and “back end” ratios, loan-to-value ratios, and so forth. It may sound like gibberish, but when your refi is on the line, ratios need to make sense. If [...]
[April 7th, 2010]
- All Roads Lead to Refinance Now While Low Mortgage Rates Last
Individuals who are looking to refinance a home loan have perhaps become accustomed to negative news headlines. The happiness of low mortgage rates has been severely hampered by news of underwater home values, foreclosure sales driving down home prices, and widespread unemployment. But of late, and especially this week, refinance news headlines have turned somewhat positive. Three [...]
[March 30th, 2010]