Articles About Finance And Refinancing

What You Need To Know Before Refinancing Your Mortgage

Today it is becoming more and more popular to refinance your original mortgage. But, is this right for you? How do you know whether you?re taking advantage of a great deal or letting yourself in for financial problems? Read on for tips to help you make an educated decision.

First, understand that refinancing your mortgage means you take out a new loan on the amount of money you owe on the existing mortgage based on new terms and pay off the old loan with the proceeds from the new loan.

Depending on the terms you obtain for your refinanced mortgage you may be able to obtain a lower interest rate than your original loan. This can be advantageous in a number of ways. First, it means you may be able to lower your monthly mortgage payments, which can be handy if you need to lower your monthly debt obligations. If you wish to keep your monthly mortgage payments the same, you could also pay off your home sooner with a lower interest rate. Over the course of your loan this could translate to major savings.

In addition, with a lower interest rate you may also be eligible to receive cash back. This money can be used to make repairs on your home or consolidate higher interest credit cards.

Before you refinance your mortgage you should understand there will typically be closings costs involved in the process. Depending on the lender you go with you may be either required to pay for the costs up front or include them in your loan and pay them off in your new payments. Costs that may be included in these fees are an application fee, cost of a new survey and title search in addition to fees for an inspection and appraisal. In addition, if you have less than 20% equity in your home you may also be required to pay private mortgage insurance just as you would if this was your first mortgage.

Given these costs, at least in the beginning, you may actually end up paying more for your refinanced loan than you paid for your old mortgage. This is why it is important to do a comparison between the two loans and make sure you will really be coming out ahead with a refinanced loan. When you do the comparison make sure you figure in how long you think you?ll remain in the home because this can have a tremendous impact on your overall savings. This is important to help you determine where you will break even and begin to actually save money on your mortgage with the new refinanced mortgage loan. If you do not think you are going to be in your home for the length of time it will take to break even, it may not be worth it to refinance your mortgage.

Finally, don?t forget to check the terms of your first mortgage and make sure you won?t be penalized for paying off your loan early. In some cases, this can amount to as much as $1,500; which can seriously impact your break even point.

Joe Kenny writes for the UK personal finance sites http://www.ukpersonalloanstore.co.uk and also http://www.cardguide.co.uk

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