Refinancing Your Mortgage
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by: marciafreeman
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Mortgage refinancing is currently very much in vogue. Interest rates are temptingly low now that lenders are slowly loosening credit following the economic meltdown of 2008 and 2009. The following paragraphs summarize information you need to know before deciding whether you want to take the plunge into mortgage refinancing.
The two main reasons people refinance are to either change the rate and terms of their current mortgage or to gain access to the equity in their home. Mortgage refinancing to change rate and terms allows you to pay one mortgage off with the proceeds from another, using the same real property as collateral. This type of mortgage refinancing offers you the opportunity to take advantage of more favorable interest rates or to build equity up faster by shortening the term of the loan. This strategy appeals to borrowers currently holding adjustable rate mortgages, or ARMs, who are looking to avoid an anticipated upward interest rate adjustment by refinancing to a loan with a fixed rate.
Mortgage refinancing to access the equity in your home allows you to take out a mortgage for an amount greater than the outstanding principal balance of your current loan. The amount remaining after paying off your prior loan, other existing liens, and your points and closing costs is yours to use as you wish. Two of the more popular reasons for mortgage refinancing in this manner are to pay off outstanding credit card debt or make improvements to the property. The major attraction of using the proceeds in this way is that, unlike credit card interest and home improvement loan interest, the interest on a refinanced mortgage loan is tax deductible.
Your chances for successful mortgage refinancing and a favorable interest rate increase by maintaining steady employment, a high credit score and conservative spending habits. Your mortgage refinancing costs decrease exponentially to the lending risk you pose to the bank. The type of mortgage product you select will also influence your interest rate. Fixed rate mortgages cost a lender money when prevailing interest rates rise above your locked in rate and, for that reason, will bear higher rates than an ARM. Your loan term length also influences the rate, based on risk. The shorter the length, the less the risk to the lender.
You can avoid costly mistakes by doing your homework prior to applying for a loan. Be sure that you understand the basics before committing to mortgage refinancing, and shop around until you find the best rate. If you are still unsure, do not be afraid to ask questions upfront before committing to anything.
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