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Mortgage Refinance

What is Mortgage Refinance? More often than not, you come across the term mortgage refinance. It refers to the substitution of an existing loan with a new loan with better terms and conditions. Mortgage refinance is a popular option for home buyers in the US to pay off their existing loans.

About mortgage refinance

When you go for mortgage refinance, you substitute your existing loan with a new loan. Whenever borrowers find any difficulty to keep up with their monthly mortgage payments, they often resort to mortgage refinancing. The new loan is available with lower interest rate and easier terms and conditions. This helps the borrower save money and pay off their existing loan obligations. The process of refinancing is mostly applicable to home loans.

Why mortgage refinance ?

Borrowers resort to mortgage refinance for a number of reasons. Some of them are described below:

  1. They can make the most of a reduced interest rate and this leads to either a lower monthly payment or lower repayment term
  2. They look for a lower monthly payment since it helps them save money
  3. They consolidate other loans/debts into one loan
  4. They mitigate risk by switching from an adjustable rate mortgage to a fixed rate mortgage
  5. They cash out from a refinance loan to receive some money

Borrowers go for refinancing whenever they face any financial hardships. The primary target is to lower their monthly mortgage payments. Refinancing of loans makes handling loans simpler. If you can combine your high-interest debts like credit card debt with your home mortgage, you can pay it off more easily throughout an extensive period.

Points in mortgage refinancing

Mortgage refinance loan providers frequently ask for a portion of the overall loan amount in the form of an upfront fee. Usually, this fee is known as premiums or points where one point is equal to 1% of the overall loan amount that you are taking. If you pay more points or make a bigger upfront payment, this will lead to a reduced interest rate. A few lenders provide to finance a portion of the loan on their own, accordingly creating so-called discounts or negative points.

Types of mortgage refinance

There are basically two types of mortgage refinance. The first one is no closing cost refinance where the borrowers need to pay nominal upfront fees to get the loan.
The second type is cash out refinancing where the borrower can get a higher amount than their existing mortgage balance and retain the extra money with them. This is subject to the amount of their home equity.

Mortgage refinance in the US

Many borrowers throughout the United States have started refinancing their loans to keep up with their monthly mortgage payments. With a sensible refinancing decision, they are able to save up to thousands of dollars every year. This is because of the reason that refinancing allows them to get a reduction of interest payments by many percentage points. Refinancing is particularly beneficial in the long run if the borrower stays in his home for an extensive period.

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