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Mortgage Refinance

If you have a dream of buying your dream home then you can do that by getting a mortgage loan. Working-class individuals cannot purchase their home outright on cash, mortgage is the easiest way to own your home.

What is a mortgage loan?

A mortgage loan is a loan that a borrower takes out to buy a house. It is a secured loan, which has the property under question as to the collateral for the loan. The process for getting a mortgage is simple.

Whenever any person applies to get a mortgage, the bank or the lender assess the creditworthiness of the applicant. Then the lender assesses the true market value of the property that the applicant wants to buy. if everything checks out then the lender releases the funds to the borrower to buy the house and the mortgage agreement is finalized.

Borrowers have to pay a down payment of 10% to 5% on the mortgage loans and the rest of the value is covered by the mortgage. Mortgage loans can have terms ranging between 5 years to 30 years. It is common to have mortgage terms between 10 – 30 years.

Mortgage carries monthly or periodic repayments that comprise of the principal and interest element. The repayments have to be made during the term of the mortgage, till the loan is completely paid off.

Mortgages can be both fixed and variable rate mortgages. It may happen that you get into a fixed-rate mortgage but a couple of years down the line the interest rates drop, making your current mortgage expensive. Or you may have a variable rate mortgage but instead of dropping the rates increase thereby making your mortgage expensive.

Your creditworthiness and affordability may also increase or decrease down the line. It may become easier for you to pay off a 30-year mortgage in 20 years or the opposite may be true and it may difficult for you to pay off a 15-year mortgage.

These are all very real scenarios that many homeowners go through, which is why there is the option of mortgage refinancing, that can be used in such a scenario.

What is Mortgage Refinance?

Mortgage refinancing is a very common practice among house owners. It can be used to close off the previous mortgage and get a new mortgage agreement on favourable terms. Mortgage refinancing can create savings for you. Some homeowners who go through refinancing say that if done properly, mortgage refinancing can help create a lot of savings.

It must be remembered that mortgage refinancing carries all of the costs that an original mortgage does. It is, in essence, a mortgage agreement, so it will carry administration costs, prepayment penalties and all of the other costs that you would find in a normal mortgage agreement.

How do I know if Mortgage Refinancing is right for me?

Mortgage refinance can be a good option for homeowners considering any of the following options

House owners having a fixed-rate mortgage may want to take advantage of reduced mortgage rates. This can be easily done by opting for mortgage refinancing.
House owners having adjustable-rate mortgage (ARM) may feel at a disadvantage if the mortgage rates are on an upward trajectory. They may want to move a fixed-rate mortgage so that if the rates keep rising, they can at least have stability.
At the time of getting into the mortgage, the borrower may have had low creditworthiness, due to which the terms of the mortgage may have been stringent. It is possible that over time the creditworthiness of the borrower increases thereby allowing access to better terms and conditions through mortgage refinancing.
An increase in income may open the possibility of going for a shorter term. For instance, if the initial term was for 30 years, the borrower may want to get it cut down to 15 years. The reverse could be true in case of loss of income.

How to look for a good deal?

Looking for a good mortgage refinancing deal is the most important part of the whole process. There is no point in refinancing unless you can find a good deal. This will require both time and effort.

Borrowers need to cast a wide net and look for mortgage refinancing deals both online and through their local banks. If you have your mortgage advisor then ask them for suitable mortgage refinancing deals.

Take your time to look for the most suitable deal. Once you have shortlisted 2-3 options make sure that you get quotes from them. Lenders may carry out a hard credit check before sending a quote and this may end up negatively affecting your credit score. Which is why it is important to ask for quotes only from a couple of shortlisted lenders.

Once you have got the quote, compare it with your current mortgage agreement and determine whether going for refinancing is the best option for you or not.

Costs Involved With Mortgage Refinancing

Mortgage refinancing carries all of the costs that are associated with a normal mortgage. In addition to the cost of a new mortgage, you will also have to deal with the closing costs of your previous mortgage.

A typical mortgage refinancing will be comprised of the following costs.

Closing cost: Closing costs should be between 3% to 5% of the total value of your current mortgage. A mortgage with a value of $90,000 will have closing costs of up to $4,500.
Loan origination cost: The new mortgage agreement will carry its own cost of origination. Just because you already have a mortgage does not mean that you will be exempt from the loan origination fee. This cost should be around 0.5% -1.5% of the total mortgage value. Thus for a $90,000 mortgage, this should be around $1,350
Title insurance cost: Around 0.5% of the mortgage value. Thus for a $90,000 mortgage, this should be around $450
Underwriting charges cost 1% of the mortgage value. Thus for a $90,000 mortgage, this should be around $900

The total refinances cost therefore of a $90,000 mortgage refinance would be around $7,200 at max. For a $100,000 mortgage, this would be between $7,000 and $10,000.

Make sure to carry out proper due diligence and take second and third advice from experts and mortgage advisors before getting into a mortgage refinancing agreement. Always remember that mortgage refinancing should make matters easier and favourable for you.