Entering into mortgage refinance allows homeowners to reduce their monthly mortgage payment or obtain cash from accrued equity in their home. However, it is important to gather all the facts and shop around for the best interest rate and lowest closing costs.
The first step of mortgage refinance should be reviewing the current mortgage note. Financial experts recommend refinancing when homeowners can obtain interest rates at least 2-percent lower than what they are currently being charged.
Borrowers should also review their mortgage note to determine if prepayment penalties exist. Nearly all home loans include a prepayment clause for paying the loan off early. Depending on the amount of outstanding principal and interest, prepayment penalties can amount to several thousand dollars.
Mortgage refinancing involves taking out a new loan either through the current lender or a new lender. In most cases, borrowers will have to pay closing costs on the new home mortgage. These costs can include application fees, property appraisal and inspection, legal expenses and various other costs which can range from 3- to 6-percent of the borrowed amount.
Some lenders offer "no-cost" home mortgage loans. This is somewhat misleading because there are costs involved when taking out a new loan. No-cost loans roll closing costs into the actual loan. Although borrowers do not have to pay expenses at the time of closing, they will pay interest on the closing costs for the duration of the loan.
Mortgage refinance generally extends the terms of the loan. Oftentimes borrowers refinance to obtain cash for college tuition, pay off credit cards and outstanding debts, or make home improvements. If homeowner's have ten years of payments remaining on their home loan and refinance into a 15- or 30-year loan, they are extending repayment by 5 to 20 years.
If mortgage payments are significantly reduced, borrowers might save money in the long run. However, if payments are minimally reduced and terms extended by 5 years or more borrowers could end up paying significantly more for their home.
The Federal Reserve Board provides complimentary mortgage refinance worksheets to help homeowners determine the actual costs involved. These downloadable forms are available at FederalReserve.gov, along with mortgage shopping worksheets, refinance eligibility requirements, and federal agency contacts.
Homeowners can also obtain assistance through the Department of Housing and Urban Development. HUD provides a nationwide list of approved housing counselors for borrowers holding FHA-approved loans or those who wish to refinance under the Federal Housing Authority.
Borrowers holding FHA mortgage notes might qualify for the Streamline Refinancing program. The Streamline program eliminates the need for property appraisals, credit checks and income verification. In order to qualify, borrowers must be in good standing and the refinance must lower monthly payments. Streamline Refinancing does not allow borrowers to obtain cash back and is only intended to lower monthly home loan payments.
As with all real estate transactions, mortgage refinance has pros and cons. Take time to become informed about the process and calculate the long-term costs associated. Doing so can save borrowers time and money.
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Tagged: Best Mortgage Refinance Rates, FHA Loan Mortgage, Home Mortgage, Lowest Mortgage Rates, Mortgage Note, Mortgage Refinance, Mortgage Refinance Article, Mortgage Refinancing, Pay Off Credit Cards, Real Estate Transactions
Published on September 03, 2009 at 03:18 AM
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