Mortgage Refinance Basics

A mortgage refinance is just that - a move to pay-off your mortgage by taking out a new loan on your home. Refinancing a mortgage therefore simply means replacing an old mortgage with a new one.

Should You or Shouldn't You?

There's no simple yes or no answer to this question. It would be better to leave it at "it depends" on your situation, priorities and preferences. Generally, however, you should refinance if you can save money by so doing. This can come about in two ways.

Lower interest costs: First, if you are refinancing to a loan with a lower interest rate than your current mortgage, then you can conceivably save on interest rate payments and therefore be able to make more payments towards the principal, increase your equity at a faster rate and pay your loan much earlier than you expected to do so.

For example, if the current annual rate of interest of your mortgage is 8.25%, your monthly interest rate is around 0.6781%. If your current mortgage balance is $80,000 and you have an interest-only mortgage, then you're expected to make an interest payment of around $542.48 monthly.

You will save money on interest payments if you manage to refinance to a lower rate. If you manage to obtain a mortgage refinance loan with an interest rate of only 6%, for example, your monthly interest charge will become only $394.52. This is a savings of around $147.96 every month on an interest-only payment scheme.

Lower future interest costs: Second, if you have a mortgage with an increasing variable rate of interest, then you can gain savings on future interest rate payments through refinancing your mortgage with a fixed-rate loan program. By doing this, you'll be able to keep your mortgage interest rate - and thereby your interest costs - at a constant level.

For example, if you have a mortgage whose interest rate is currently 6.5% and a balance of $80,000 (as in the previous example), monthly interest payments would be around $427.40. However, if your loan's index rate (the rate on which your actual interest rate is based) increases by one point and becomes 7.5% the next year, then your monthly interest charges on the same balance would be $493.15. If the year after that, your interest rate increases by another point, your interest rate will become 8.5%. Assuming that you still haven't made any payments towards your principal, your monthly payments will become $558.90.

In three years, therefore, your interest rate payments will change from 427.40 to $493.15 then to $558.90. Assuming that each particular interest rate sticks around for a year, your interest rate payments in three years will amount to $17,753.42.

On the other hand, if you changed to a fixed rate of interest now, you can save yourself money on future interest payments. For instance, you can replace your 6% adjustable rate mortgage with a 7% fixed-rate mortgage refinance. This will actually make your current interest rate payments greater at $460.27 but this will lead to savings of around $32.88 next year and $98.63 the following year. In this fixed-rate loan, your interest payments in three years amount to only $16,569.86 - yielding a total savings of $1,183.56 in interest rate payments.

Of course, current and future savings aren't the only considerations when deciding to refinance. You should also weigh your savings with the costs of refinancing. When you refinance, you will also pay various loan processing fees as well as the origination fee. Compute the costs of a mortgage refinance and compare it with your projected savings. Refinance only if your savings will be greater than the costs.

Rate Article

Related Videos
Play Video Getting the Most from Mortgage Refinance	Play Video How to Refinance to Avoid Foreclosure	Play Video Bad Credit Mortgages	Play Video Understanding Interest Only Or Interest First Loans	Play Video How to Claim a Mortgage or Other Interest Expense as a Deduction

Listed below are more articles related to the above article from the "Mortgages Refinance" article category.

People interested in the above article "Mortgage Refinance Basics" are also interested in the related articles listed below:

 

Using The Temporary Mortgage Buydown

You need a purchase mortgage that is a bit bigger than you can qualify for customarily and you know it won't be a problem financially as soon as the wife returns to work next year. You don't intend to take any of the adjustable rate mortgage choices as rates are heading higher, so how can you have your cake and eat it too?

Mortgage Defaults Still Rising

This morning Trans Union, the big credit bureau, released its quarterly report on mortgage defaults, and it was not pretty. Nationwide, 6.25 percent of all residential mortgages were at least 60 days past due in the third quarter, up from 5.81 percent in the second quarter and 3.96 per cent a year ago. This was the 11th uninterrupted quarter that mortgage defaults increased.

Can You Quality For A Canada Loan?

Are you shopping for Canada Mortgage? Do you know the basic qualifications? You will need to show financial ability. Lenders look at your monthly expenses. You should have a good employment history. The number of children you have is also important. Discover mortgage information that will help you get a Canada loan.

MS Foreclosures - New Program To Deal With Increasing Bank Foreclosure Properties

Because of the rising foreclosure news problems in the country, the government, both national and local have been trying to come up with special programs to address the foreclosure problem. MS foreclosures and other areas have been hit the hardest.

Employment Considerations with Miami Foreclosed Homes

When you qualify for a home loan through a bank, employment is a big factor with the banks before they decide to give you a loan. Employment shows a lender you can afford the loan, you have stability in your life, and they will get their money back for the property.

Finding A Mortgage Online

Do you want to do all of your research for the best mortgage options, submit a mortgage application, and get approval all online? This article details the steps on just how to go about mortgage research, how to shop correctly, and how find the best loan deals online.

How To Locate Good Mortgage Brokers

Finding a good mortgage Broker can be hard and tricky. Some steps can ease your search process to find the one who can offer you the best mortgage rates.