Is Refinancing Right for You?

One of the main reasons homeowners refinance their mortgages is to take advantage of lower interest rates. If you plan to stay in your home for several years, the savings you will realize in the form of a lower monthly mortgage payment could justify the cost of refinancing your home.

During the times when interest rates are higher, homeowners often choose adjustable-rate mortgages (ARMS), which traditionally offer lower interest rates during the early years of aloan. When rates come down , you may want to refinance to a fixed-rate loan, which provides the stability and predictablility of knowing exactly what your mortgage will be for the life of the loan.

If you feel constrained by the expenses of your current mortgage, you could refinance from a fixed-rate mortgage to an adjustable-rate mortgage (ARM) to gain the benefits of lower payments. Remember, that the interest rate on an ARM can increase at its periodic reset date, whichmeans your reduction in monthly payment amount may only be for a limited time. If you plan to live in your home for a short time and then sell, refinancing to an adjustable -rate mortgage may make sense.

Many homeowners want to build equity in their homes more quickly and choose to refinance to a mortgage with a shorter term. A portion of your monthly mortgage payment goes toward reducing the loan balance (principal) and the remaining amount goes toward interest on the loan. So, with short-term loans, a greater percentage of your monthly payment is applied to principal, which also lowers the total amount of interest paid over the life of the loan.

In addition, through what is often referred to as a "cash-out" refinance, you can tap the equity that has accumultaed in your home to pay expenses, such as the education of your children, debt consolidation, and home improvements.

Refinancing Process

Since refinancing involves paying off an existing mortgage and taking out a new one, you will complete a loan application which will assess your capacity to repay the loan, credit history, assets, including equity in your home.

Because you are applying for a new loan, you may have to pay many of the same fees associated with the original purchase of your home, including:

• Appraisal Fee
• Credit Report
• Loan Origination Fee
• Title Search and Title Insurance

These closing cost are usually rolled into your new loan amount so you do not need to pay anything "out of pocket" to refinance your loan.