Exactly What Mortgage Refinancing Means
With interest rates near all time lows, theres a lot of talk in the media and elsewhere about the advantages of mortgage refinancing
. But what IS mortgage refinancing? What steps are involved? And is it right for you?Taken at face value, mortgage refinancing is kind of like car shopping: essentially, youre trading in your clunker mortgage the one with the high interest rate, with or without unattractive terms for a new, sleeker mortgage, with lower interest rates and, perhaps, improved terms. And just like the new car model can save you money in gas and maintenance costs, your new mortgage can save you thousands even tens of thousands of dollars over the life of the loan.
Of course, refinancing is actually a little more complicated than trading in an old car for a new one. The first step in refinancing should actually take place even before you begin your search for a mortgage lender. Do you know what it is? Its pretty simple, actually: Get a copy of your credit report, from all three major credit bureaus. Every U.S. citizen is entitled to one free credit report each year from each agency. If youve already received your free report, you can receive additional reports for a fee. You may also want to get a copy of your credit score, or FICO, the numerical value assigned to you by the Fair Isaac Corporation thats based on your credit history and which mortgage lenders use to assess your creditworthiness.
Lenders also use your credit report and score to help determine the rate and terms youll be offered when you apply for a mortgage. Once you receive your reports, take some time to review them carefully, and note any errors you may find. Many reports are error-free; but others may have small or significant mistakes that can have an impact on your overall credit rating. If you find errors, there are simple methods for disputing them in order to have them corrected or removed from your report entirely.
Once you feel confident that your credit reports reflect the true status of your credit history, you can begin shopping around for a loan. When refinancing an existing mortgage, you have two primary goals in selecting a loan thats right for you: lower interest rates, and/or better loan terms. With the current low interest rates, its a good bet that if your mortgage is more than a few years old, youll be able to find a mortgage at a lower rate that can save significant money over time. The old rule of thumb that refinancing only makes sense if the new interest rate is at least two percentage points lower than your old rate doesnt hold anymore. Even a small interest rate change can be worth a refinance.
The second goal for most homeowners looking to refinance is to improve their terms. The terms of your loan may involve the length of time required to pay off your loan, or they may refer to the type of loan you have most notably, fixed-rate or adjustable-rate. In a fixed rate mortgage, you pay the same interest rate for the life of the loan, while an adjustable rate typically offers a low teaser rate for the first few years of the loan, followed by a rate hike later on. Adjustable rates appear attractive when the current interest rate is high, and when you do not plan to remain in your home for a long period of time. But with todays low rates, most fixed mortgages are as attractive as those adjustable teaser rates, making fixed mortgages a better deal for most.
In addition to improving the rate or terms or both of your existing mortgage, refinancing is a great option if youre in need of a large amount of cash and youe home has significant equity. Simply put, equity is the difference between what you currently owe on your home and what your home is worth. Refinancing allows you to unlock your homes value, to obtain access to that equity in order to finance large purchases or repay debt. With rates lower than most credit cards and personal loans, a refinanced mortgage is a great source of cash for major life events, like weddings or college. Refinancing can also pay for a once-in-a-lifetime trip or family reunion, or for the purchase of a vacation home or rental property, for an added stream of income.
Some homeowners may use the money from refinancing to pay back other debt that currently has a higher interest rate a sort of personal debt consolidation program. And many homeowners use refinancing as a source of money to pay for home renovations. Since those renovations will likely raise the value of your home, using a refinance to improve or upgrade your home is a smart move.
No matter what your reason may be, refinancing in todays market is a smart financial move. A little research on your part can ensure you find a mortgage that can save you thousands of hard-earned dollars.
by: mor123 Cheap Labels Quality And Value What Kind Of Leather Beds To Purchase? The 5 Business Benefits Of Healthy Buildings Trends & Developments In Nigeria Telecommunication Market Online Business That Can Make You Rich In 2010! How To Stop The Most Common Scheduling Conflicts Clean Your Walls Before You Deck The Halls How does free website builder promote business? Precautions For Online Shopping Why Buy King Size Beds? Coaching - An Idea Whose Time Has Come Part 1 Shifting With Packers Movers Of Delhi Ncr Uplighters Can Lift Up Your Mood