Mortgage Refinancing

Basically, mortgage refinancing is replacing an existing home loan with another financial institution at better terms or obtaining a new loan from the same financial institution at better terms. There are several reasons why homeowners may choose to refinance their mortgage such as:

• Acquire a lower interest rate
• Changing the loan type
• Speeding up equity building
• Drawing on the equity in the property

To obtain a lower interest rate and reduce monthly mortgage payments is no doubt the main reason homeowners refinance. Speeding up equity building is another common reason because owning property is considered one of the safest most lucrative investments you can make.

Early Pay off Penalties

Whether there’s an early pay off penalty involved with refinancing will vary according to different lenders and loan types. Even if one exists, it may still be worth it to go ahead and refinance. In some cases, the institution that is refinancing the mortgage may be willing to pay a portion of the penalty. Obviously, the lender would have to see some kind of profit from the transaction that would be higher than the penalty absorbed.

Eligibility For Mortgage Refinancing

To assess whether loan refinancing is a beneficial option, borrowers should ask themselves the following questions:

• How many years remain on my mortgage?
• How long to I plan to live in my home?
• Will I be able to afford the costs involved with refinancing?
• Will I save money over the life of the mortgage?

A lender will determine a borrowers financial eligibility to refinance based on the following items:

• Income
• Current mortgage information
• Property value
• Inquiry of other Information

Refinancing will involve a lot of the same steps as the first mortgage. Borrowers will be required to complete a loan application which will include the property value and amount of equity in the home, financial and credit history, and other information specific to the loan. Typically, lenders will request the following information:

• Income and employment verification
• Asset and debt information
• Financial account numbers for checking savings, etc and balances
• Site title copy
• Title search
• Current monthly mortgage payment amount
• Appraisal of property
• Outstanding loan balance
• Status of property tax and insurance payment

Whether a borrower is choosing to refinance in order to lower monthly mortgage payments or quicken equity building, several lenders should be contacted before making a decision on one. It’s usually a good idea to speak with the original lender first, then contact other lenders to compare mortgage types, interest rates and terms - individual lenders will have varying costs and fees.

Mortgage Refinance Settlement Costs

Lenders will usually allow the borrower to include the settlement costs into the loan amount on a refinancing without referring to it as a “cash-out.” Here is an example: If the balance on the original loan is $125,000 and the settlement costs (including the lender’s fees) are $4,200, the new loan could be for $129,200.  A loan larger than that would be a cash-out with a higher price.

Borrowers can use a mortgage estimator like the one on CNNMoney.com’s website to see if it pays for them to refinance. Current monthly loan information is entered along with refinance options. The results are then calculated to see which options are optimum for the borrower’s needs.

If you would like more information on mortgages, visit the experts at New Homes Central Lending.

[tag]mortgages, home loans, mortgage refinancing, loan refinancing, refinance, refinancing[/tag]

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