Before Opting For Mortgage Refinancing.

Refinancing your mortgage is a very important decision

. It is not something that you can go for on a second thought. If your aim for refinancing is to save money, then you must make sure that you understand all the costs involved in the process, so as to avoid unpleasant surprises and a lot of debt.

So Why Refinance?

There are several reasons why you may like to refinance your mortgage. It could be because you wish to change the terms of your loan, take advantage of better interest rates, change the type of loan - say fixed rate to variable rate, or extend the term of the loan. Whatever be your reason, it is important to fully comprehend all the costs involved and the benefits that you should be getting out of this decision.

Costs Involved in Refinancing

When you go for a mortgage refinance to replace an existing loan, you need to consider much more than just the interest rate offered on the new loan. Refinancing a mortgage loan will involve appraisal fee, legal charges, application fee etc. In addition, the lender of your previous loan may charge you a penalty for closing the loan prematurely, if there is such a clause in the terms of the agreement. Consider all these costs and see if the benefits still outweigh the costs.

Other Factors

There are some important factors that influence the rate that you will be charged on the new loan, such as the value of your house, which will be appraised for the second loan. During a slow economy, the house value drops, and in such cases, the price that you paid to buy your house has no meaning for the appraiser. The value that he determines for your house can be much lower than what you expect and so will be the loan amount.

In addition, the prevailing money lending rates in the market affect mortgage rates

significantly. Having a fair idea of whether interest rates are currently low or high will help you decide the right timing of the loan. If the economic climate is positive and the interest rates are likely to shoot up in the future, then you can save money by going for a fixed rate interest loan, which will cushion you from rate increases.

Refinancing your existing mortgage is often a good idea; however, you should carefully evaluate the benefits and costs before taking this step.

by: Ben B

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