Mortgage refinance means the taking of a new secured loan to pay off the remainder portion of an existing mortgage and continue servicing the new loan. The logic behind mortgage refinance is that the initial loan was taken at a fixed interest rate, which was higher than the existing rate in the market. Thus, mortgage refinance enables you save money by paying off a higher-interest loan with a lower-interest loan and then paying-off the lower-interest loan through a fixed schedule. The mortgage refinance facility is available throughout the United States, and we shall look at the state of California in this report.
Decide on your need
California offers a number of mortgage refinance options, and you must choose the one that suits you best. Remember, there is no thumb rule to selecting the best option because cost-saving needs vary from case to case. First of all, you must decide the following:
- Are you looking for the best interest rate?
- Are you looking for the lowest possible monthly payment?
- Are you looking for low overall interest expenses?
Types of refinance
Once you have decided the above, you must choose the type of refinance you want. Remember that mortgage refinance is basically a mortgage loan on terms more convenient to you than the initial loan. Thus, the types of mortgage refinance, or loans, are available in California:
- Fixed-rate mortgage: These are mortgages on which a fixed interest applies throughout the life of the loan, which is usually between 15 and 20 years.
- Adjustable-rate mortgage (ARM): These have low rates and low monthly payments to start with, but these increase with time.
Fixed-rate refinance loans have the advantage that you know for sure how much you will be paying every month till you have paid back the last cent. However, the disadvantage is that you will not be able to take advantage of lower rates in the event of rates falling in the market. Adjustable-rate loans give you the advantage of low rates initially, but you will be paying more in the future. How much more you pay in the future will depend on how rates move in the market, which nobody can predict with accuracy. You have to make your choice.
Interest rates vary in the United States. The main factors that influence rates are:
- Type of home: e.g., single family, multi-family, townhouse, or condo?
- Your credit profile: e.g., good, fair, needs improvement, poor (though this might not always be a major factor since refinance loans are secured against property).
- Value of your property: the higher the market value, better the terms of refinance loan you will get.
Early January 2008, mortgage, hence mortgage refinance rates too, were:
- 5.49% for 30-year fixed-interest loan
- 5.01% for 15-year fixed-interest loan
- 5.26% for 3/1 ARM, which means that the initial rate will apply for the first three years, and then will adjust every year until the loan is fully paid back.
- 5.43% for 5/1 ARM (i.e., initial rate for five years, and adjusted every year thereafter).
- 6.23% for 30-year fixed rate jumbo loan.
Lenders and brokers in California
California is a well-serviced state as far as financial services are concerned. There are many lenders and brokers around, and it is advisable to opt for a broker because they can guide you through the different options available from different lenders. You can locate lenders and brokers in your city through the Internet, using an appropriate search string such as “mortgage refinance California”. To save your time, you might just want to visit http://www.mortgageloan.com/Mortgage/California/ and click on your city and make your pick. Remember to get quotes from at least three brokers / lenders, before selecting one. Before that, you should make sure that you do need a mortgage refinance: there are situations where refinance may not be necessary, such as if you have already paid off a major portion of your earlier loan.
Note that the broker / lender you select for your mortgage refinance need not necessarily have its head-office in California. The bigger brokers and lenders have offices in many states, and they can be accessed through the Internet. What is important that you know what you want on the basis of your own calculations and advice from the broker or lender’s representative. Though rates are governed by the Fed and lenders cannot give you any rate they want, discrimination can be made on the basis of their service, promptness and range of options.