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Refinancing Your House: Key Considerations You Need to Know

Jun 12, 2008
Refinancing a home could mean you're getting a second mortgage or simply renegotiating your first one to save on interest costs. It's not as complicated as it sounds and can actually save you thousands of dollars in interest charges. To learn more about refinancing, keep reading.

Why People Refinance

The primary reason people refinance an existing mortgage is to save on interest charges. While dropping a fixed rate mortgage that's sitting at 9% and has 15 years left on it for a mortgage that's being offered at 6% (and you can afford to pay it off in 8 years) is going to save you thousands of dollars, but sometimes the benefits aren't always as obvious.

If the difference in rates and the subsequent term length is small, you may not wind up saving any money at all. You may have to pay prepayment penalties against your first mortgage, depending on how soon you pay it off. Then, you may also have application fees, closing costs and private mortgage insurance associated with the second mortgage. In that case, then refinancing may not be worth it.

The second reason people refinance is to liquidate some of the equity they've acquired in their home. Whether paying for a renovation, college, general education, debt load, investment or wedding, refinancing can be a way to get one's hands on the cash needed.

Choosing Points

Typically the first choice borrowers face when choosing a refinancing loan is whether to pay points on the total value of the loan. Typically, a point is 1% of the total mortgage amount.
Basically, paying higher points up front means you'll get a lower interest rate over the course of the loan. Meanwhile, paying no points means you won't have to lay out those immediate costs, but your long term interest rate will be higher. If you're planning to remain in your house long term, you may want to opt for the initial costs and the lower interest rates long term.

Choosing a Lender

Typically, you'll get a faster refinancing or home equity line of credit approval if you go with your existing lender. Wells Fargo even offers an online refinance process for existing customers.

Finally, before you choose your refinancing option, ask yourself why you want to refinance. Is it to lower your monthly mortgage payments? Shorten your payoff time? Get money for a project or family expense? Once you are clear in your own mind about the goal, you'll be better equipped to pick a product that works for your financial circumstances.

Ben Horne at homeloanmortgagers provides great mortgage preparation ideas, such as the type of mortgage loan and Bank of America home personal loans.
About the Author
Luca Ricciardiello is a property investor and business owner.

Visit Property Investing Site for 50 more quality articles on property investing, flipping, short sales, FSBO, rent back, financing and other property related topics.

Through Property Empowerment Luca empowers women by helping them manage their mindset, their money and create wealth through property investing.
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