Many reasons exist to refinance mortgages. The most common include obtaining a reduced interest rate, change the type of loan, or receive cash back from accrued home equity. Reducing interest rates by 2-percent or more can save borrowers thousands of dollars over the course of a 15- or 30-year mortgage note.

When borrowers refinance mortgages the original loan is paid off and a new loan originated. Mortgage refinance requires homeowners to submit a new home loan application. Borrowers who hold two or more mortgages can refinance into one new loan.

Prior to contacting lenders, financial experts advise borrowers to review current loan documents. It is important to determine the interest rate applied to the loan and if a prepayment clause is included. Many mortgage lenders impose prepayment penalties for closing loans early. These fees will be charged in addition to closing costs associated with refinancing.

Lenders grant mortgage refinancing approval based on multiple factors. Borrowers must possess a solid track record of paying bills on time, along with a credit score of 700 or higher and a solid employment record. Other mortgage refinance criteria include the appraised value of the property verses the amount of outstanding interest and principal.

Homeowners can refinance mortgages to obtain cash to pay off credit cards, outstanding debts, student loans, medical expenses or for home improvements. Home loans are charged a lower interest rate than other types of credit. For example, the average rate for a 30-year fixed rate home loan is 5.03-percent, while credit cards are charged an interest rate of 12-percent or more.

Mortgage refinancing can occur at any time. Individuals who hold a subprime loan often elect to refinance into a conventional loan within a few years. Many borrowers who hold a 30-year mortgage choose to refinance into a 15-year loan once their finances improve and they can afford higher mortgage payments.

Homeowners who refinance mortgages will incur closing costs for the new loan. Some lenders provide no cost loans, meaning the closing costs are included in the refinanced loan. It is important to realize interest will be charged on settlement costs for the duration of the loan. It usually makes better financial sense to pay closing costs upfront and avoid paying interest for 15 to 30 years.

The decision to refinance mortgages should not be taken lightly. Borrowers should take time to seek out information and resources to help them make the best financial decision. The Federal Reserve Board offers a comprehensive consumer’s guide to mortgage refinancing via their website at FederalReserve.gov. Visitors can download worksheets to help them determine if they meet mortgage refinancing criteria; determine the actual costs involved; and obtain mortgage loan comparison guides.

Homeowners should only refinance mortgages when doing so will save them money. Otherwise, they could be placing their most valuable asset at risk for foreclosure. It is best to consult with a financial advisor, credit counselor or mortgage broker before engaging in mortgage refinance.

Reduce Your Mortgage Online

Reduce Your Mortgage Reduce Your Mortgage