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Refinance Mortgage Information

By: Regina Maniam

It is not everyday that you need to understand refinance mortgage information. When you do need it, it can all seem quite overwhelming, but take a bit of time to understand the process and it is not nearly as daunting as you may have imagined it. This article provides refinance mortgage options together with important considerations to determine whether it is worthwhile refinancing.

There are actually a few options for homeowners when considering refinancing their home. Deciding the type of loan is the most significant of these considerations. Fixed rate mortgages and adjustable rate mortgages are two main types of mortgages. There are also hybrid loans available.

Fixed Rate Mortgage

Fixed rate mortgage, as the name suggests, has its interest rate constant throughout the course of the loan period. This is very attractive when the homeowner's credit is enough to lock in a low interest rate.

Adjustable Rate Mortgage

Adjustable rate mortgage or ARM has an interest which varies during the duration of the loan period. The interest rate is usually tied to an index such as the prime index and is subject to rises and falls in accordance with this index. This is considered to be a riskier type of loan and is often offered to homeowners with less favorable credit scores.

Although considered more risky, normally there is a degree of protection included in the loan agreement. This can come in the form of a clause that limits the amount the interest rate can increase, in terms of percentage points, over a fixed period of time. The homeowner can then be protected from sharp increases in the interest rates which would otherwise considerably raise the amount of their monthly payments.

Hybrid Loans

Hybrid loans combine the fixed and adjustable elements. An example of this would be a loan where the lender offers a fixed interest rate for the first five years of the loan period and a variable interest rate for the remaining period. Lenders use this as a means to make the mortgage look more enticing with a lower introductory interest rate.

Consider the Closing Costs

Closing costs associated with re-financing may include but are not limited to appraisal fees, application fees, loan origination fees and a host of other expenses. This should be carefully reviewed when making a decision whether to refinance your home, as this is significant because when homeowners re-finance their home they are often subject to many of the same closing costs as when they originally purchased the home. When you look at your overall savings related to refinancing, you will find the closing costs to be significant.

Consider the Overall Savings

Overall savings is an important factor to consider when deciding whether to refinance or not. Some homeowners may refinance to lower monthly repayments. Even in this situation, it will be a good idea to see if money is saved by refinancing.

Saving resulting from refinancing is mostly dependent on the new interest rate in relation to the old one. Other factors like the remaining balance of the existing loan and also the length of time that the homeowner plans to stay in the home before selling it are also considered.

Note that the amount of money that you can save by negotiating a lower interest rate does not equate to the entire savings. The closing costs related to the refinancing must be subtracted from the potential savings. A negative amount indicates that the interest rate negotiated is not low enough to cover the closing costs. Of course, a positive number means that get overall savings. With this kind of refinance mortgage information, you can decide whether or not refinancing is for you.


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