Refinancing Your Loan

By on May 14, 2013

Mortgage refinancing gives homeowners the opportunity to reduce the overall amount interest owed or monthly payments. If interest rates have fallen, the home has been remodelled, your credit score has improved or are interested in switching your loan type, then you may be considering refinancing your home loan.

Are you considering refinancing your home mortgage?

Before you do, learn more about what refinancing entails and consult with a trusted financial advisor to review your specific situation.

Definition

Refinancing refers to the replacement of an existing loan with a new loan. Typically, a borrower will refinance when they can get a better interest rate, have increased the value of the home or want to improve the terms of their loan. The original mortgage is paid off and replaced by a new – hopefully less costly – mortgage.

Refinancing does require a second application process which could require home appraisals, income and total value of asset verification, credit checks and more. Lenders will be looking for any new changes to your finances that signal your future inability to repay the loan.

Function

Refinancing allows borrowers to save money over the life of the loan with a lower interest rate, a better type of loan or better term.

  • Lower Total Debt Owed
  • Lower Monthly Mortgage Payments
  • Pay Off Mortgage Sooner
  • Convert to a Fixed-Rate Mortgage

Benefits

  1. Save on interest payments when you go from a long 30-Year to a 15-Year short-term mortgage
  2. Secure a low-interest rate the same monthly payment for the life of your loan when you go from a burdensome adjustable-rate to a fixed-rate mortgage
  3. Reducing the overall amount owed on the loan to free up equity – cash – which homeowners can use for home improvements or other necessities

Considerations

Borrowers with qualified credit ratings and income to debt ratios may be eligible for better rates and options for refinancing than those with average credit, changes in their employment status or savings level, and marginal incomes.

Shop around, just as you did your first mortgage. The original mortgage lender may be willing to refinance to keep your business, however, there are other lenders out there who may be able to match or better suit your financial needs.

Don’t forget about the other associated costs and fees for applications, appraisals, points, closing, private mortgage insurance premiums and others. Factor these costs in to see if you are really saving money overall.

Economics

Refinancing is most beneficial when a home’s values is increased – through the market or home improvements – and a concurrent fall in interest rates.

There are times when refinancing is not beneficial. You may be able to refinance if your home is underwater, but the terms and conditions of the new loan may or may not be good for you in long term. And if you plan on moving soon, you may not be able make enough payments at the low rate to save you money and break even you you go to sell.

Learn More About Mortgage Refinancing

If you think it is a good time to refinance your home mortgage, gather your financial documents and asses your options. Learn more about home improvements, cash-out refinancing and other tips for turing your real estate into a succesful investment.

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About Terri A. Kamoto

Senior writer for FSN - Terri is a former financial analyst dedicated to making personal finances, budgeting, investment and insurance advice accessible, up to date and easy to understand. It is hard to find professional advice written in a language someone without a financial background can understand. Terri helps companies synthesize industry lingo and expertise into clear and informative content which builds smarter, financially successful individuals. You can find Terri on !

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