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What Does it Mean to
Refinance Your Mortgage?
By: Gust
Lenglet
Every day companies appear on the various
media, urging you to refinance your mortgage, but
very few of them ever take the time to clarify
what exactly refinancing your mortgage entails. If
you are considering taking the steps to
refinance
your mortgage, here’s what you need to know.
What Does “Refinance Your Mortgage”
Really Mean?
When you refinance your mortgage you are
essentially going to be replacing your existing
mortgage with a new one. This allows you to take
advantage of opportunities to obtain a lower
interest rate and capitalize on your home equity a
little earlier than previously anticipated.
There are a number of reasons that you may
choose to refinance your mortgage. You may want to
lock in a lower interest rate, taking advantage of
the swings in the housing market or your new
credit status. You may be trying to escape from an
adjustable rate mortgage, an idea that sounded
great when you first considered it but has turned
out to be slightly less beneficial than
anticipated. You may also do it because you need a
sizable chunk of extra cash and it’s the most
expedient way of obtaining it. Whatever your
reasons, you stand to gain quite a bit when you
refinance your mortgage.
What are the Risks When You
Refinance Your
Mortgage?
There are actually very few risks involved
with refinancing, particularly if you take the
time to do your homework and lock in a great loan
rate. The true dangers in refinancing come when
you fail to research your options prior to signing
on the dotted line. You may find yourself shackled
when you refinance your mortgage with a loan that
carries a higher interest rate than the original.
You may also find yourself having to pay for
personal mortgage insurance where you didn’t have
to previously due to having less capital at your
disposal for a down payment, raising your monthly
payments past the point of good savings.
There is also always the chance that you
will choose to refinance your mortgage, stretching
out the length of your repayment term, only to
discover two or three years down the road that you
want to sell your home. You now have a brand new
loan standing in the way of obtaining a mortgage
to purchase a new house-something you are
certainly going to want to do before you sell your
old one!
How to Find the Best Deal to
Refinance Your Mortgage
The best place to start when you’re looking
for a great deal on a refinance is your own back
door. Most financial institutions deal with
refinancing, and if you have established a
reputation for yourself with a particular bank you
will have a better chance to refinance your
mortgage at a great interest rate than if you come
to the loan officer as an unknown face. Regardless
of where you choose to do your refinance, however,
it is important that you take the time to do some
legwork and compare what other lenders have to
offer. Remember that no one stands to gain more
from this than you, so take the time to carefully
research your options and make the choice that’s
best for your
mortgage.
Gust Lenglet is an
accomplished author in the field of personal
finance and home budgeting. He is the CEO of Crown
Financial Concepts, Ltd. where you can get timely
and valuable advice on creating a personal or household
budget.
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