Home ownership is one of biggest dreams that one can fulfill in a lifetime. If you currently own a home, you are undoubtedly proud of your accomplishment. It is also likely that you currently hold a 30-year mortgage, with 20 or more years left before it is fully paid-off.
For mortgage holders, it is a good idea periodically to take a look at the current interest rate trends in the market and determine whether it makes sense to talk to a lender about mortgage refinance loans.
Simply put, mortgage refinance loans are loans that take the place of your existing mortgage. When a new refinance loan is closed, the existing mortgage is paid off instantly. Then, the new loan repayment period starts, meaning new loan terms, new interest rate amount and often interest rate type. For example, it may go from an adjustable rate mortgage (ARM) to a fixed rate mortgage.
Usually, people apply for this type of loan if they notice or suspect one or more of the following things:
1. Interest rates have declined.
2. Interest rates are set to go up in the near future.
3. Their credit score has improved.
4. They would like to switch the type of mortgage they have.
Mortgage refinance loans can be a smart move for many people. Depending upon the refinance loan options you choose, the benefits of mortgage refinance loans can include one or more of the following:
• lowering your monthly payments
• reducing your interest rate
• reducing your interest cost over the life of the loan
• generate capital (money) to pay for upcoming expenses
If you have some equity in your home and would like to turn some of that into cash that you can use to pay expenses, you may benefit from a cash-out refinance loan. However, if not cash is needed at closing (or if you do not have the equity to spare), you will want a rate-term refinance loan.
Mortgage refinance loans may cost you more in the short term than they save you. That is because taking out a refinance loan requires that you pay various fees, which usually can amount to 3% to 6% of your outstanding principal.
Refinance fees can include, for example: an application fee, a loan origination fee, loan discount points, lender points, appraisal fee, inspection fee, attorney review fee, homeowner's review fee, FHA fees, a survey fee, title search and title insurance fee.
Among these fees, points may be the largest. They also may be avoidable. Usually loan discount points are paid in exchange for a lower interest rate. Meanwhile, the lender points are basically akin to a lender commission and are negotiable. They can range from 0% to 3% of loan principal.
Depending upon the length of time you plan to own your home after you refinance, you may determine that paying the various fees is not worth the short-term savings you may realize from refinancing.