If you have a mortgage, then you might not be happy with some of the terms of your loan. You might be paying too much per month, the loan term might be longer than you would like, or maybe you just need a little extra cash and want to increase the size of your loan. To accomplish any of these goals, you will need to go through a process known as mortgage refinancing. They help you determine whether refinancing is the right choice for you. Here are some of the basics:
How does refinancing work?
The general idea behind refinancing is that you exchange your current mortgage for a mortgage with different terms. Naturally, you will want to switch to a mortgage with better terms, but you will need to carefully analyze your current situation and your possible options in order to determine whether refinancing is the right option for you.
The main reason for this is that you will usually need to pay a significant fee in order to refinance your loan. If the long-term savings are much larger than this fee, then the process can be a no-brainer, but the benefits aren't always so clear. If you have questions on the topic, there are a variety of calculators online that can help you figure out at which point you would break even with various factors.
How can refinancing reduce your monthly payments or change your loan term??
Refinancing your loan can reduce the interest rate that you pay every month. In some cases, this can mean switching from an ARM with a high interest rate to an FRM with a lower interest rate.
In other cases, you can increase the duration of your loan, which will likely end up making you pay more in the long run, but it will also reduce the amount that you need to pay every month. If your monthly income is reduced or if you get some new unexpected expenditures that you will need to handle, then reducing your monthly mortgage payments might be worth the price of a longer loan period.
How can refinancing give you money now?
One type of refinancing allows you to effectively take out more money on your loan immediately, commonly referred to as cash-out refinancing. In these situations, you basically take out a new mortgage that is larger than your current loan. The difference between the old and new mortgage goes to you as a sum of cash.
This can be a good choice if you need to deal with an unexpected cost, such as emergency medical care or the like. Contact a real estate expert who deals in new homes and mortgage refinancing to learn more.