Having the word “refinance” in “mortgage refinance” should tell you that it is a new mortgage that you apply for in order to pay off the original mortgage. Refinancing an existing mortgage is a fairly common practice in the industry. There are many specific reasons why people opt to refinance their mortgage, however, in general, taking out a second mortgage is done to allow the borrower to get better terms as well as interest rates on their homes.
When You Refinance Your Mortgage
What happens when you refinance your mortgage? The original loan is paid off, and the second loan is created. For people who enjoy high credit scores, refinancing their current mortgage loan is a good way to convert their variable interest loan into a fixed interest loan. While in most cases refinancing lowers interest rates, there are times when mortgage refinancing can be risky. This brings us to this question: When should you consider refinancing your current loan?
In order to answer this, let us look into the many reasons why people take out mortgage refinance. The first reason why people do it is to avoid balloon payments. Balloon payments simply refer to bulk payments. Another reason people refinance is to have lower monthly payments. The third reason is for the borrower to cash out a portion of their house’s equity. Any of these reasons is as valid as the next. However, whatever your reason may be for refinancing your mortgage loan, you should always do your research. There are many cases where the borrower can suffer a higher interest rate or bad terms on their loan. This is mainly because of ignorance and the lack of research.
If you want to refinance your loan, check with your original mortgage company. It is well-known that it is easier to keep an existing customer than to make a new one. This is the reason why most mortgage companies offer better deals to their current customers. That said, the first thing you need to do if you want to refinance your current mortgage is sit down with your current lender. After that, go out and research on other deals.
There are other factors that you need to consider when comparing refinance loans. One of the major factors is whether or not the mortgage company is going to pay any penalties on the first loan. Most lenders charge early termination fees on their loans. The fees can be substantial and this is the reason why you need to make sure that if you opt for a new lender, that the new lender will pay this termination fee and still give you a good deal. Another cost that you need to consider paying is the attorney’s fees. You may want to process a loan on your own. However, if you want to ensure that you are getting a good deal, you should have a lawyer do the work on your behalf. This is optional, but what isn’t optional is the bank fee attached to the loan. Consider these fees and do the math.