Based on the current home equity statistics from the U.S. Census, approximately 7.2 million Americans applied for home equity loans in the past year. However, you need to be well informed about the benefits of various kinds of loans and mortgage refinancing options and make a wise decision which will help you saving huge amount of money.
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What is Mortgage Refinancing?
When you bought your house, you would have taken a loan which is also considered as mortgage and needs to be repaid, you are in first lien position. When you refinance this mortgage or take another mortgage, you will be second lien position with your new loan. This indicates that your first mortgage will be cleared off by your second one which will then become your first lien. Through mortgage refinancing your can reduce the cost of financing your homes and increase the return from the investment in it. You will also be able to avail the lower interest rates at a shorter timeframe which will in turn reduce your cost on mortgage.
Benefits of Mortgage Refinancing
The most important benefit is that you will be successful in repaying your first mortgage and will have to just pay the second mortgage at a much lower interest rate. It will be even better if you get a fixed interest rate as compared to adjustable rate mortgage (ARM) which keeps varying. It also helps in debt consolidation and use the saved money to improve or renovate your house with the help of 125% home loans, home equity loans and home equity credit lines.
Costs Involved in Refinancing the Mortgage
There is usually some cost involved while refinancing your existing mortgage:
- You will have to take a ‘Lenders Mortgage Insurance’ which is payable if you get loan over 80% of the value of the property. This insurance usually costs more than one per cent of your total value of the house
- You will also incur handling fees, valuation fees, application fees and settlement.
- If you wish to repay the loan prior to the due date, then you will have to pay the early breakout fee.
- You also have to pay discharge fees associated with your existing mortgage as well as the Government Registration fees for your new mortgage.
- Charges for Stamp duty
While considering mortgage refinance, you should do adequate research and find out all details about it. You should also check if there are any hidden costs involved in it. You can get best mortgage refinancing rates if you use comparison tools that compare home loans or use mortgage calculators to find out about your repayments. Once you have decided on a suitable lender for the refinancing, have a discussion and negotiate for the best rates so that you can save a lot of money through refinancing of your mortgage.