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What Is Involved in Refinancing Your Home?

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By : John Cutts    99 or more times read
Refinancing your home is the process of taking out a new mortgage on a home you already own in order to secure a lower mortgage interest rate. When homebuyers first take out a mortgage loan to buy real estate, one of the biggest factors in determining the size of your monthly payments on the loan is the interest rate. While the interest loan rate does depend somewhat on your own personal financial situation, it also depends on the status of the greater economy. Sometimes, mortgage rates will be generally high. At other times, they might fall to a much lower average rate.

If a homebuyer takes out a mortgage, and two years later finds that mortgage rates have fallen significantly, they may feel they have missed an opportunity. Mortgage refinancing allows you to take advantage of that opportunity for a low mortgage rate even if you already have a mortgage. Refinancing your home is like taking out a second mortgage. However, you use the money received from the second mortgage to pay off the first one immediately. Since your new, second mortgage has a lower interest rate, your new monthly mortgage payments will subsequently fall as well, allowing you to spend less on your mortgage every month.

Refinancing your home can be a great chance to make home ownership more affordable. Many homeowners choose to refinance after they've owned a home for a few years, because making payments on time every month can improve their credit and status as a mortgage owner. This can help them qualify for a better, less expensive loan. It can also be an excellent way to avoid foreclosure. Often times, rather than foreclosing on a home and losing money, a lender will be more likely to help you refinance your home. If home ownership ever becomes a burden, or you fear missing payments, looking into refinancing your home can be a fantastic option.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.

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