Saturday, January 26, 2008

Mortgage Refinancing Secrets Revealed

Refinancing means applying for a secured loan intended to replace an existing loan secured by the same assets. Refinancing may be done by any issuer of debt, such as corporations and governmental bodies, as well as holders of real estate, including home owners. Many owners of both commercial and residential real estate used certain analysis in their refinancing decisions known as the “2-2-2” rule. What this means is that: if interest rates have fallen two points below the existing mortgage, if the owner has already paid two years of the mortgage, and if the owner plans to live in the house another two years, then refinancing is feasible.

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Benefits of Refinancing

Refinancing a mortgage can lower the monthly payments owed on the loan. This is done by changing the loan to a lower interest rate, or by extending the period of loan, thereby spreading the re-payment out over a long period of time. The benefit of this is that the money saved can be applied to paying down the principal of the loan, and this will further reduce payments.

Refinancing an adjustable rate mortgage into a fixed rate one help to remove the risk of interest rates increasing exponentially. This will further help in stabilizing the interest rate over a long period of time and reduce the risk associated with an existing loan.

Refinancing a loan can help in paying off high interest debt such as credit card debt, with lower interest debt such as that of a fixed rate home mortgage. However, non-tax
Deductible debt, like credit card or car loan debt can be transformed into tax deductible debt such as home mortgage, resulting in lowering one’s taxes.

In addition, refinancing is also used to liquidate some or all the equity that has accumulated in real property during the tenure of ownership.

Facts You Should Know Before Refinancing

Credit score: if your credit score is low, you must improve on it first before considering refinancing otherwise your interest rate is going to be high. But those with a high credit score will not encounter any problem in terms of high interest rate.

Planning your budget before refinancing will enable you to know the cost of the mortgage, the benefits and savings. If the savings will help paying other debts such as credit card bills and unsecured loans, then refinancing can be a good decision.

You should know if your current mortgage is the best deal for you and for how many years do you intend to keep or stay in your home. If you intend to sell your house in less than three years time then refinancing may not be good for you. But if you intend to keep your home for a very long time then refinancing can help you pay off your home sooner with some savings added.

If you believe that refinancing is a good decision for you then shop for a good lender. Compare the total costs you need to pay off with your existing mortgage, also add or consider fees and charges you may incur when you take on a new mortgage. Finally, make sure that the interest rate is lowered, say about two to three percent lower than your current mortgage.

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