Mortgage refinancing is an option available to borrower's who want to initiate a new loan against their home. Homeowner's can refinance mortgages to obtain a better rate of interest, alter terms of the loan, enter into a new type of loan, or obtain cash to pay off outstanding debts or make home improvements.
Mortgage refinancing requires borrowers to submit a new loan application either through their current lender or a different mortgage lender. Before applying for a new home mortgage it is important to review the terms of your current mortgage note. Nearly all home loans include prepayment penalties for closing the loan early.
Prepayment penalties are commonly used when borrowers obtain sub-prime home loans. Penalties are imposed because borrowers who obtain sub-prime loans generally have less-than-perfect credit and place the lender at a higher risk.
Prepayment penalties are included in prime loans as well. Prime loans are reserved for borrowers with excellent credit ratings and those who make substantial down payments. In exchange for accepting the prepayment penalty, borrowers receive a lower interest rate.
Home mortgage loans must be accompanied by a Truth in Lending Disclosure Statement (TIL). Within the TIL are the terms regarding prepayment penalties. Unfortunately, most people do not read the TIL or loan documents at closing. When they attempt to refinance mortgages they are shocked to discover they will be financially penalized for paying the loan off early.
When homeowners engage in mortgage refinancing they will also be required to pay closing or settlement costs on the new loan. These costs can include fees for loan application, loan origination, property appraisal and inspection, mortgage insurance and legal fees.
Borrowers who hold a first and second home mortgage can be hit hard with closing costs when refinancing their property. Closing costs for mortgage refinance fall between 3- and 6-percent of the loan. Add in prepayment penalties from two mortgages and total costs can quickly add up to several thousand dollars.
Home mortgage refinancing can be beneficial in certain situations. Borrowers must take time to determine the actual costs and weigh the pros and cons of entering into a new loan. Those unfamiliar with the process can obtain counseling through their lender, mortgage broker, real estate professional, or HUD approved housing counseling agencies.
Mortgage refinancing is a decision that should be carefully weighed. Realize, you are entering into a new contract that can place your home at risk for foreclosure if you default on the loan. If refinancing is in your best financial interest, take time to shop around for lenders to obtain the best rates and terms.
If you are confused about home loan refinancing you are not alone. We invite you to browse our mortgage refinancing article library to learn more and locate helpful resources to help you make the best financial decision.
Published on August 25, 2009 at 02:56 AM | Comments: 1