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Mortgage Refinancing in All Its Aspects

Nov 30, 2007
People go in for mortgage refinancing when they are interested in replacing their current secured loan with a new one. The same assets act as collateral. This means that you take on another loan to replace the old one with the same property used as security against the new loan. Mortgage refinance is especially advantageous for people who would like a fresh loan with lesser interest costs by refinancing it at a marked down rate.

By going in for mortgage refinancing, a borrower would have access to a whole lot of funds while not feeling over-burdened by the repayment dues. A lot of people go in for refinancing in order to extend the period of repayment. The funds which may be acquired from refinancing is allowed to be used with almost any purpose, including the opportunity to pay off other debts.

A lot of people who go in for mortgage refinancing tend to make a shift from their adjustable rate mortgages to fixed rate ones. Since a variable-rate loan tends to shift its interest rate (depending on prime rates which in turn rely on a fluctuating economic index such as currency strength and economic growth), moving over to a fixed-rate mortgage is more beneficial in the long run. Often, this proves accurate even if the interest rate is somewhat higher than in the case of the adjustable rate.

Moving to a refinance mortgage is a good idea if the applicant is of the opinion that this is a move that will help him save a lot of money. This could be either for the short term or for the long run, or if he needs an extension of the loan in order to compensate for unanticipated expenses such as medical and educational dues.

However, if the aim is to save money, one must look out for additional fees and penalties. This means loans with provisions incurring penalty on the borrower for an early repayment of the loan, either in its entirety or in part. It also costs money since it involves closing and transaction fees. This could end up costing you more than you had bargained for.

In certain kinds of refinancing, the borrower is supposed to pay a certain amount upfront if he wants to secure the new mortgage. This is as long as the market rate is lower than your current rate by at least 1.5 percent. With cash-out refinancing, the borrower may refinance the existing loan for one with a higher amount and keep the cash difference for himself. However, this method has a problem which is that the monthly payment does not really get reduced and the repayment period may not be shortened.

Generally, the creditor will require that you pay a certain amount as an initial fee to start of the process of mortgage refinancing. This portion is commonly referred to in the industry as points or premiums, wherein every point equals to one percent of the total amount of the loan. The advantage of the point system is that the borrower has the option to pay more points in return for lowered interest rates on the loan. The option is given to the borrower. He has to decide whether or not he would like to use the money that he saves to pay off extra points.
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