How Mortgage Refinancing Works
Mortgage Refinancing allows homeowners to replace their old mortgage loan with a new, more manageable mortgage. In the new deal, the borrower can request special favors in form of a customized mortgage to fit well into their current terms.
The amendment can involve reducing the length of years previous set as the repayment periods, adjusting the loan’s mortgage rate to accommodate the borrower’s current income, or the amount borrowed.
In most cases, the reason homeowners apply for a mortgage refinance is to cut their monthly repayment amount, cancel their mortgage insurance premiums, get funds to expand their home or implement renovations on their assets.
Who Refinances Your Mortgage?
Well, it depends on what the market is willing to give. If your current lender is offering a more reasonable deal, you may want to stick with them for a refinance.
However, there are credit unions, online lenders and banks willing to refinance your mortgage at water dripping offers. In short, this is business and billions of dollars exchange hands every year in the name of mortgage refinancing.
Other Special Reasons to Refinance Your Mortgage
While there are penalties attached in case one decides to refinance their mortgage with another lender, still borrowers may want to break the old contract for what the new deal offers. Such a decision can be influenced by:
- Lower Interest Rates on the Other Side
Even after considering all the penalties, you might find that the new mortgage is giving a lower interest rate, which promises to save you some bucks over time. Whatever the case is, it’s good that you bring a mortgage expert into the picture to help you analyze the pros and cons of refinancing your mortgage with a new lender.
- To Consolidate Debt
This point comes to play if you have good equity on your home. It means you can replace your old mortgage loan and use the cash for other outstanding debts, such as credit card bills, a car loans or a line of credit. In this case, you’ll have several different sources willing to help you consolidate your debts by tapping from the property’s equity value.
- To Access the Equity
Other than taking ordinary loans for your new business ideas (which by virtue would charge higher interest rates) compared to refinancing an existing mortgage loan, you can take advantage of the equity your home has accumulated. By refinancing, you have a chance to access up to 80 percent of your asset’s value minus any outstanding mortgage loan balance.
You can use the extra cash to further educate yourself, your children, set up a new business to increase your income margin, or boost your home’s value through renovations.
There are countless methods of refinancing a mortgage. These may include extending the mortgage with the current lender, blending your mortgage, or breaking the mortgage contract to engage a new lender.