Refinancing a mortgage can save you money, but make sure you carefully examine and calculate all potential costs and savings before you sign on the dotted line. A refinance essentially trades in your old mortgage for a new one. Borrowers typically refinance to obtain a lower interest rate or change the term on the original loan. Term refers to when the loan matures. The most common term is 30 years. Your credit will be given the same scrutiny as it was by the bank the first time, and you will need to have an updated appraisal done on the property. The home appraisal allows the lender to assess the value of the property now. Your credit score and credit report will be requested, as well as any information on additional mortgages on the home. A refinance will have similar paperwork to fill out as you did when you received the original mortgage on the house. Your original mortgage (and any additional ones on the property) will be paid off by the refinance. You will have to pay appraisal fees, documentation preparation fees, title documentation fees, lawyer fees, lender fees and points (if applicable) like you did the first time you obtained a mortgage for the home.
A good number of mortgage holders who have currently decided to refinance, are doing it because the rates are so much better now than when they obtained their current home loans. When deciding if you should refinance your mortgage, you should first determine the savings you would incur over the life of the loan by using the old interest rate versus the new. Then, compute the cost of the fees and expenses incurred by applying for and obtaining the new mortgage. Do not forget to tally any early pay off penalty fees. Finally, try to estimate the duration you expect to keep the mortgage. If the interest rate for your original loan is 7.5 percent and the rates have now dropped to 5 percent, a refinance could add up to tens of thousands of dollars by the time you sell the house. It would be wise to refinance, if the cost of the refinance will only be $1500. If you plan to sell in two years, though, it may not be worth the cost of the refinance.
A refinance done at the right time can reduce your monthly payments. Your credit rating will be maintained, since you will not miss payments. Again, assure you do the calculations to determine if the application and settlement costs of the refinance will be less than the savings accumulated over the lifetime of the loan with the new interest rate or term.
See these also Mortgage refinancing .

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by: marciafreeman
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