The first step to refinancing your mortgage would be to determine the reasons why you want to refinance your mortgage.
The most common reason why people choose to refinance their mortgage is to secure a better
interest rate. The best interest rate is no interest, so refinancing your home at a lower interest rate will actually do two things for you.
First, it will allow you to pay more on your principal (total remaining loan amount) and less in interest.
Second, the lower interest will result in lower monthly payments.
Another common reason why people choose to refinance their home is to switch to a different type of loan.
An example would be switching from an adjustable rate mortgage ARM to a fixed rate mortgage FRM.
With an ARM your interest rate increases by about two percent or more, after a certain period of time.
Getting a fixed rate mortgage will stabilize your monthly payment and lock your interest rate for the entire term of the loan.
The next step to refinancing your mortgage is to be aware of the dangers that come along with the industry.
Like in any other industry, there are dishonest workers in the Mortgage Industry. There are dishonest brokers who are interested
in their personal profit rather than your own financial well being. To avoid getting ripped off make sure you
are aware of these potential pit falls.
Research a few mortgage brokers before choosing the broker thats right for you.
Unfortunately, not all mortgage brokers are honest.
It is important to be aware of your broker's qualifications
and make sure that he or she doesn't have any particular interest
involved with your mortgage.
There are hundreds of loan programs on the market with various
interest rates, fees, and features. What loan is best
for you depends upon your situation with your existing loan.
Understanding the basic types of loans will enable you to make
the right decision on which loan type is best for you.
Here are some brief descriptions of the most common loan types
on the market.
- Adjustable Rate Mortgage - In this type of loan the interest rate changes throughout its life. This mean depending on its economic index the interest rate can go up or down.
- Fixed Rate Mortgage - This loan offers you a fixed interest rate, which will allow you to budget effectively knowing that your monthly payment won't change. Although having a fixed interest rate may seem like a clear advantage, the disadvantage of this loan type would be its degree of flexibility when trying to make extra monthly payments.
- Home Equity loan - This is a fixed rate loan which is basically a second or third mortgage on a home. This lets you turn equity into cash allowing you to spend it on home improvements, debt consolidation, or other expenses. Equity in real estate is the value of ownership in a property. The value equity or equity line of credit is determined by calculating how much you owe and how much the property is worth.
There are obvious advantages and disadvantages affiliated with loan
types and refinancing a home mortgage. All of which must be understood
and taken into consideration. The decision you make truly depends upon
your own situation. Will refinancing reduce your monthly payments or
will the savings from the monthly payment be greater than the upfront costs of a loan? At the end of the day, whether or not to refinance
your home comes down to basic calculations.