How Does Refinancing Work? - 3 FAQs

How Does Refinancing Work? - 3 FAQs

By Susan Willis

You have probably heard or read a lot about home mortgage

refinancing lately. It is something that gets a lot of press -

on TV, in newspapers, and on the Internet - especially when

mortgage interest rates take a dive. Mortgage refinancing is

essentially the act of paying off your existing mortgage using

the cash from a new mortgage. Usually, the new mortgage is

secured at a lower interest rate than the existing mortgage.

This is what makes the refinance worthwhile to do: the promise

of lower monthly payments, lower total cost of the loan, or

both. 

How Refinancing Works? 

If you are wondering, "How does refinancing work?", here are 3

frequently asked questions about home mortgage refinancing: 

Question 1. When should I refinance? 

Answer: The best time to refinance is when your situation meets

any or all of the following conditions: 

a. you notice that average mortgage interest rates advertised

by banks have dropped much lower that they were when you signed

your current mortgage. 

b. your current mortgage is an ARM (adjustable rate mortgage)

whose fixed rate is about to expire, thereby switching to a

variable rate that may be higher than your fixed rate. 

c. you have equity in your home that you would like to

liquidate (i.e., turn into cash). 

d. you would like to shorten the repayment terms of your loan

in order to pay it back more quickly, thereby reducing the total

cost of your loan* 

* note that in this last case, most people with an existing

mortgage always have the option of prepaying their mortgage

balance down faster with no prepayment penalties. However, most

people find it easier to make higher payments when they are

actually being invoiced each month for those higher payments by

their lenders, rather than just writing larger checks. Still,

most people interested in "d" above will only do so if they can

also get a better interest rate for their refinance mortgage

than they have on their existing home loan. 

Question 2. Who can refinance? 

Answer: Anybody with an existing home mortgage may refinance at

any time. If the home's title is in the name of more than one

person (say, a husband and wife), both must be present during

the refinancing process. 

Question 3. How do I get started with my refinance? 

Answer: Refinancing starts with your keeping an eye on interest

rates. When you see them dip at least 0.5% below the rate you

are currently paying on your existing mortgage, that is the time

to start seriously considering refinancing. 

Then, follow these steps to get the ball rolling: 

1. Create a list of at least 5 refinance lenders. It is always

a good idea to ask for a refinancing offer from your existing

lender, but don't stop there: you have no legal obligation to

refinance with your existing lender. Rather, your are highly

encouraged apply to multiple lenders to increase your chances of

getting the best-possible rate. 

2. Keep careful track of the contact details for each lender.

Use a spreadsheet application or pen and paper - this is not the

time to skimp on taking excellent notes! 

3. For each offer you get, be sure to always go back to the

lender to see if they can do better. It does not hurt to ask,

and you may be surprised by a better offer. Be sure to keep

track of any points (commissions) being charged, in addition to

the interest rates each lender offers you. These frequently

asked questions (and their answers) can help you understand how

refinancing works and how to get started in the process.

About the Author: Get more tips on home mortgage refinancing at

the best-possible interest rates at:

http://www.home-mortgage-refinance-loans.com Home Mortgage

Refinancing Tips.

Source: http://www.isnare.com

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