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Mortgage Refinance - Is It a Good Idea?

February 18, 2012 | Comments: 0 | Views: 140

With the troublesome economy all over the globe right now people everywhere are asking themselves, "Where can I get money?" This is a difficult question to answer in difficult times. Many have been down the road of mortgage refinance before, and there are those who have not. For all it is a difficult decision to make, especially in these harsh economic times.

What is a Mortgage Refinance?

To refinance ones mortgage is to take a loan against the equity that has already been paid into the house. The newly acquired mortgage refinance loan will replace the old mortgage on the home and the borrower will be required to make payments on the loan as they did before. The terms and time allowed to pay back the loan can change. This is can be both a beneficial and negative towards the borrower.

Most who are purchasing a home look for either a 15 or 30 year fixed-rate mortgage. This means that the borrower agrees to pay back the loan within the allotted time at a fixed annual percentage rate (APR). As with any home loan, the buyer has the option to escrow their property taxes. Meaning, they will pay the property taxes upfront and incorporate the extra money borrowed into their loan. This is considered to be a "conventional home loan". There is also what is called an Adjustable Rate Mortgage (ARM), which can offer lower initial interest rates but the interest rate will fluctuate over a given amount of time decided at the time of borrowing. These are not recommended for most consumers as the interest rates are very volatile because they are based on the current lending rates of the credit market. For instance, if your APR is set to change every 3 years and you get an ARM at 3% in 2005, the interest rates on the current lending market could jump to 10% and you would be stuck in that loan. Most borrowers deter from this type of loan unless they only plan to borrow the money for a short time so they can lock in a low interest rate.

Reasons to Refinance Your Mortgage

Aside from the obvious fact that the borrower can get a large amount of money, there are a lot of reasons that may compel someone to look into a mortgage refinance. One of the most common reasons is known as "Debt Restructuring". A self-explanatory use of a mortgage refinance basically means the borrower intends to use a low interest home loan to consolidate other debts such as another mortgage, a car loan, or credit card debt. Credit cards can have an interest rate of up to 25% or more, whereas a home loan is usually lower than 5%, so the appeal of a home mortgage refinance to pay off other debts should be apparent.

Other reasons for one to refinance their mortgage involve financially savvy people converting what they call "bad debt" into "good debt". In this case, the borrower is either trying to lower their current interest rate on their mortgage or convert from an adjustable rate mortgage to a more beneficial fixed-rate mortgage.

Whatever your reason, make sure to do some shopping around before diving into a mortgage refinance.

I have been originating mortgage loans for the past 12 years. Coaching seniors concerning the possibilities of a great retirement is my passion. It is incredibly rewarding to demonstrate to a retired person the approaches to make their retirement one they desired. You can get a Free Mortgage Refinance Quote to find you how much you can qualify for. If you own a manufactured home and are unsure whether your home meets the requirements mentioned above, we will do the hard work for you.

Source: EzineArticles
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