Home Mortgage Loan Refinancing
How to Get the Best Interest Rates to Refinance a Mortgage
Aug 19, 2009
Interested in refinancing a home mortgage? There are many reasons that homeowners might seek to refinance a mortgage loan, but the key is to secure the best interest rates as well as terms and monthly payments that suit the mortgagee's income, investment goals, and a comfortable level of risk.
Why Might Someone Want to Refinance a Home Mortgage?
There are many reasons that homeowners might seek to refinance the mortgage on a home, ranging from a need for smaller monthly payments to compensate for lower income or unexpected bills, to a smart investment move to take advantage of better interest rates:
- Lower Interest Rates: If interest rates have dropped substantially since the mortgage loan was taken out, refinancing could save thousands of dollars in the long term
- ARM About to Adjust: If a homeowner has an adjustable rate mortgage (commonly called an "ARM") that is about to adjust to substantially higher monthly payments, refinancing to a fixed rate mortgage is a safe and sensible change to save money and keep payments low
- Consolidate Debt: Homeowners who are in debt might choose to refinance to consolidate several debts into one loan – their home mortgage – to save on interest and make monthly payments easier
- Cash from Home Equity: Mortgage refinancing is sometimes done to take cash out of available home equity in order to help pay for a new real estate purchase, medical bills, a wedding, or a special vacation
Mortgage Loan Refinancing Options
There are many options in refinancing a home loan, but the finding the best choices will depend on the reasons for the refinance. If the present mortgage is an ARM that is about to adjust, a fixed rate refinance is the only sensible option. If the homeowner is looking to capitalize on lower interest rates than those of the original mortgage, then it makes sense to look for the best deals available and avoid any costly extras that the banks or lenders might offer.
The best way to learn about the choices that are available is to speak with a qualified mortgage loan officer or mortgage broker. If the mortgage lender who provided the original loan is unhelpful, try shopping around for better offers. A reputable broker can talk in detail about the choices that are available at the moment.
Mortgage Refinancing Costs – Is It Worth It?
One of the big considerations in choosing to refinance a home mortgage is to factor in the closing costs – fees that the bank or lender will charge to end the present mortgage loan and open a new one.
If the homeowner can save 0.5% to 1.0% on interest rates (a substantial savings over the course of any loan's term) but closing costs to refinance the mortgage are in the range of 3-5% of the loan, required upfront, then refinancing to a better interest rate might cost more money than would be saved. If the costs to refinance are less than the savings, on the other hand, it could be the right time to purchase a better mortgage.
Whatever the circumstances of the mortgage refinance, it's always a good idea to run the figures on the savings and the closing costs of refinancing with several different lenders to find the best deal.
Reference
- Landers, John B., "What Are the Different Refinance Closing Costs?" WiseGeek.com, 2009.
- Lovett-Reid, Patricia, "Should you refinance your mortgage?" Finance.sympatico.msn.ca, 31 March 2009.
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