Mortgage Refinance

When and how mortgage refinance can be done?

A decision of mortgage refinance would be influenced by various reasons. You might want to reduce current financing costs. Otherwise, you would like to raise cash to meet emergency expenses. Or you might wish to merge two or more mortgage loans so that you make one single payment to one lender. Conversely, you might be able to pay more than your present repayment amount and you might think of reducing your repayment period. Whatever is the reason for mortgage refinancing, the pros and cons had to be thoroughly analyzed before taking the ultimate step of mortgage refinance.

If you wish to reduce your financing costs, first you should make a comparison of the costs of your present mortgage loan or loans with the costs of a new mortgage over a future period. There are several mortgage calculators that are available on the Internet that you could use effectively to understand the difference in such costs. These calculators normally require the following data to provide you a solution.

1. How long do you expect to stay in your present home?
2. What is the rate of interest on savings that you are looking for?
3. What is your income tax bracket?
4. What was the value of your home when you originally took the present mortgage loan?
5. What is the present value of your house?
6. What is the expected rate of value appreciation of your home in future?
7. What is the current loan balance?
8. What is the present rate of interest on the loan?
9. How many more months remain in the present mortgage loan and for how many years do you plan the mortgage refinance?
10. What is the present monthly mortgage insurance payment?
11. What is the percentage of mortgage refinance closing costs?
12. Whether you plan to pay the closing costs in cash or whether you want them to be financed?

Once you have fed all these details in the calculator, you would be able to find out whether your option of mortgage refinance is a cost-effective one or not. If you still have any doubts, it would be better to consult a professional mortgage broker or a mortgage lender, before taking a final decision.

If you desire that extra cash should be raised by mortgage refinance, you should compare the advantages and disadvantages between mortgage refinance and home equity loan. To arrive at a decision, you have to consider the following points in detail.

• The interest rate that is offered for mortgage refinance and the rate offered for home equity loan
• Amount of mortgage insurance to be paid on mortgage refinance
• The interest rate of the present mortgage loan, the balance period of the loan and the amount of mortgage insurance on the loan
• Term of repayment of the mortgage refinance and that of the second mortgage
• The amount of cash required by you
• Your current income tax bracket
• The period you expect to continue in your present home
• The interest rate that could be earned in savings

The mortgage calculator would estimate all the costs for both options and would provide you with a break-even interest rate for home equity loan. Once you have the highest rate that could be paid on second mortgage and if it were more than the rate you had been offered for the second mortgage, you would be able to decide that second mortgage is the better option.

If you feel that you would be able to pay more in future, you might refinance the current mortgage loan with a period that is considerably lesser than the present term of repayment. Let us take an example. You have taken a mortgage of $250,000 at 8% fixed interest rate for a period of 30 years 3 ½ years ago. Your monthly mortgage payment is $1,834.42. You could refinance your existing mortgage by opting for a 20-year mortgage refinance. You would be saving quite a handsome amount by such refinance. You could use the mortgage calculator to decide the exact extra payment required for paying off the new mortgage by a specific term of repayment.

It is normally difficult to find a lower interest rate offer for mortgage refinance than the original mortgage. This is mainly due to the fact the most of the lenders are stretched to their limits in financing first mortgages. Further, the increase in mortgage refinance had made a higher number of people resorting to refinancing more than once in a span of a few years to take advantage of lower interest rates. This enhances the cost of lending for the lenders. To compensate this, normally the lenders usually raise the cost of refinancing to discourage such lock-jumpers, as they are termed. However, if you have a frank discussion with your lender and explain the reasons for your decision of mortgage refinancing, you would definitely be able to get attractive refinance terms.