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Refinancing Your Home

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By : Vicki Hat    99 or more times read
When a person refinances his or her mortgage, the original loan will be paid off and will be substituted by a new mortgage with better loan terms. So why do people opt for this? Why is there a need to have your mortgage replaced?

Many people opt to refinance for the following reasons:

  1. They want to be able to save money by paying getting lower interest rates.

  2. They want to pay off their mortgage quickly and this is achieved by shortening the loan period.

  3. They want to draw money from the home equity and use it for hospitalization and some other expenses.

  4. They want to pay-off their debts conveniently. Hence, they consolidate their loans and other credits and pay it off from one lender.

  5. You want to lock in rates that are lower and replace the existing variable rate that is riskier and constantly fluctuates.

Refinancing may sound a good option for those who are desperate or those who are undergoing financial crisis. This gives them an opportunity to trace off their previous loan terms to something that is more favorable to them. However, while this provides a temporary solution for them, this option may not be that good for those who have no problems at all. Opting to refinance calls for careful evaluation. Experts advise that refinancing should be pushed through only if the current conditions are met:

  1. The interest rate you are opting to get has lowered by 2 points.

  2. Your house value has not decreased or even if it did, 80% of the reappraised value that you will borrow should be enough to pay off the existing debt.

  3. If you can afford the cost of refinancing since you will still end up paying some of the fees that you have paid before when you first applied for your original loan.

  4. The number of years you decide to stay in that house would be equivalent or more than the breakeven period (breakeven means the point wherein you have recovered all the money that you have spent for refinancing; there is neither gain nor loss).

  5. You have enough equity from your home and if your credit scores are good. If you have enough equity, you will be able to get enough cash if you decide to have.

Refinancing is a good option if you have satisfied all of these things. If you have, there are better chances that your lenders would grant your request. However, some people would rather go ahead with this process without doing any further evaluation. People who have temporary financial troubles would rather secure lower monthly payment rather than risking their homes for foreclosure or even use their equity to pay off some of their major expenses.

But if you decide to go through with refinancing, it is best that you start talking with your existing lender. Doing so will allow you to negotiate any prepayment penalties should there be any. Aside from that, you would have to avoid going through the more tedious process of application like securing the requirements and other documentation. With your existing lender, you can forgo this part as they have your records already on file. But should you decide to go with another lender, always shop around and find better rates. Interest rates from one lender to another would vary. Shopping around will help you get the best deals and the best rates.
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