Should I Refinance My Mortgage?
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by: marciafreeman
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Many consumers are considering refinancing their mortgages, but some do not thoroughly think through the process before jumping in. A refinance essentially trades in your old mortgage for a new one. Borrowers typically refinance to obtain a lower interest rate or change the term on the original loan. Term refers to when the loan matures. The most common term is 30 years. The Lender will examine your credit and your home will undergo the same appraisal process as when you purchased your house and applied for the original mortgage. The home appraisal allows the lender to assess the value of the property now. The lender also will review your credit report and credit score, as well as request a title report on the house to check if there is a second mortgage or a lien on the property. If approved for the new mortgage, you may go through the same process you did when you bought the house, but there is often less paperwork with a refinance. Your original mortgage (and any additional ones on the property) will be paid off by the refinance. You will have to pay appraisal fees, documentation preparation fees, title documentation fees, lawyer fees, lender fees and points (if applicable) like you did the first time you obtained a mortgage for the home.
Most homeowners who refinance choose to do so because interest rates have decreased significantly compared to the current mortgage. When deciding if you should refinance your mortgage, you should first determine the savings you would incur over the life of the loan by using the old interest rate versus the new. Next, add up all the costs of the refinance itself. Make sure you include any penalty fees for paying off the original loan early, if applicable. Lastly, determine how long you intend to keep the property. Say the new rates are at 5 percent and your current mortgage is 7.5 percent, you could save thousands of dollars over the next 7 years you plan to own that property. It would be wise to refinance, if the cost of the refinance will only be $1500. If you plan to sell in two years, though, it may not be worth the cost of the refinance.
The refinance of a mortgage can lower your monthly mortgage payments, making it easier to make those payments on time. Your credit rating will be maintained, since you will not miss payments. Again, assure you do the calculations to determine if the application and settlement costs of the refinance will be less than the savings accumulated over the lifetime of the loan with the new interest rate or term.
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