Introduction
Applying for a home loan mortgage refinance is prudent for those who obtained mortgage at a time when the interest rates were high or for those who have an adjustable rate on their loan. The procedures for refinancing mortgage are more or less the same as when you got your first loan. What is more important to consider is whether it would be beneficial to refinance your property and how to get a better rate on a home loan mortgage.
Step 1
Would refinancing be worth it?
If the prevailing market rates are at least 2% points lower than your current rate, it makes financial sense to apply for a home loan mortgage refinance. This is the general acceptable level when balancing the cost of refinancing a mortgage versus the savings achieved. Other factors to consider include how long you intend on staying in the house. It takes at least 3 years to realise fully the savings from a lower interest rate, given the cost of refinancing.
Step 2
Applying for a home loan mortgage refinance is a good way to lock in a lower interest rate. Moving from an adjustable rate mortgage (ARM) to a fixed rate mortgage will also enable you to account for the total cost of the loan, regardless of market conditions. Home owners can also use their home equity to obtain cash to finance a child’s education or for a major purchase. However, it will only make sense if you intend to stay in the house long enough to absorb the additional costs involved. If you decide that refinancing is not a viable option, ask your bank if it’s possible to obtain all or some of the new terms you want by agreeing to a modification of your existing mortgage instead of refinancing.
Tips
Before applying for a home loan mortgage refinance, make sure to consider the factors below:
Will the new interest rate be 2 or 3 percentage points higher than the prevailing rates being offered for either fixed or ARM?Is the next interest rate adjustment on your existing loan likely to increase your monthly payments significantly?Will refinancing a new ARM or a fixed rate enable you to pay the loan in full by the end of the term? If the current mortgage sets a cap on your monthly payments, are those payments large enough to pay off your loan by the end of the original term?
Sources and Citations
The costs associated with a home loan mortgage refinance include
Application Fees: This is imposed by your lender to cover the cost of processing the loan and checking your credit report.
Title insurance and Title Search: This cost will confirm the ownership of the real estate and the cost of a policy.
Lender’s Attorney’s Review Fees: The lender will charge you for fees paid to the lawyer or company that does the closing for the lender.
Loan Originations Fees and Discount Points: This is charged for the lenders work in evaluating and preparing your loan.
Appraisal Fee: This is charged as an appraisal that is a supportable and defensible estimate of the value of the property.
Prepayment penalty: This is the charging of money for an early pay off of the existing loan.
