Various Aspects of Mortgage Refinancing

2. Are you a homeowner and striving hard to lower your monthly expenses? One of the best alternatives for you is refinancing your home. As the interest rates are quite low and reducing rate on a huge loan such as a mortgage can help you save a significant amount of money. Here, refinancing your mortgage implies that you are replacing your existing mortgage loan with a new one. Lowering interest rates for improving the cash flow is one of the prime reasons why homeowners opt for refinancing. Other significant reasons include changing the term of the existing loan, switching from an adjustable-rate loan to a fixed- rate loan, and more. So if you have decided to take advantage of mortgage refinancing, then you need to understand a few things about the same. Scroll down to read: Mortgage refinancing can extend the length of your loan Replacing your existing mortgage loan with a new one through refinancing and choosing the same term can lead to an extension of your mortgage payment duration. However, it is only beneficial if the interest rate allows you to spend less money over the course of the newer loan than that of the previous one. If you wish to shorten the loan term, you can make voluntary pre-payments if you are financially capable.

3. Costs and fees linked with mortgage refinancing There are certain costs and fees that you need to pay when you are opting for mortgage refinancing, such as an appraisal, credit check, title company fees, origination fees, closing fees, and likewise. Usually, on average, these fees are 2% to 4% of the total loan amount. These amounts must be taken into consideration while deciding on refinancing. And to get ideas on these costs and fees, you must look at the documentation of your current loan. Usually, these fees can be found in the document called “Closing Disclosure.” You must also ask your refinancer for the list of charges.’’ Break-Even Point Another aspect that affects your mortgage refinancing is the break-even point. While evaluating the closing costs, you can check what will be your break-even point. For instance, if your closing costs are $4000 and your monthly savings on the mortgage payments are $100, then it will take about 40 months to recoup these costs or break even, hence, you won’t be able to save before you reach this point. While this time period is standard for your original mortgages, the break-even point in refinancing should be about two years or less. Selling your home before the break-even point could cost you more instead of saving.

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