Mortgage Refinance Basics

by Plazea Martensen on February 26, 2012

A mortgage refinance is just that – a move to pay-off your mortgage by taking out a brand new loan on your house. Refinancing a mortgage therefore merely indicates replacing an old mortgage with a new 1.

Should You or Shouldn’t You?

There’s no easy yes or no answer to this question. It could be better to leave it at “it depends” on your scenario, priorities and preferences. Generally, however, you need to refinance if you can save money by so performing. This can come about in two ways.

Lower interest expenses: 1st, if you’re refinancing to a loan with a lower rate of interest than your current mortgage, then you are able to conceivably save on rate of interest payments and consequently have the ability to make more payments towards the principal, increase your equity at a quicker rate and spend your loan significantly earlier than you expected to do so.

For instance, if the present annual rate of interest of your mortgage is 8.25%, your monthly interest rate is around 0.6781%. If your present mortgage balance is $80,000 and you have an interest-only mortgage, then you are expected to create an interest payment of around $542.48 monthly.

You’ll save money on interest payments in the event you manage to refinance to a lower rate. In the event you manage to obtain a mortgage refinance loan with an interest rate of only 6%, for example, your monthly interest charge will turn out to be only $394.52. This can be a savings of around $147.96 every month on an interest-only payment scheme.

Lower future interest costs: Second, when you have a mortgage with an growing variable rate of interest, then you can acquire savings on future interest rate payments via refinancing your mortgage having a fixed-rate loan system. By doing this, you’ll be able to keep your mortgage interest rate – and thereby your interest costs – at a constant level.

For example, if you have a mortgage whose rate of interest is presently 6.5% along with a balance of $80,000 (as within the prior example), monthly interest payments could be around $427.40. Nevertheless, if your loan’s index rate (the rate on which your actual rate of interest is based) increases by one point and becomes 7.5% the subsequent year, then your monthly interest charges on exactly the same balance would be $493.15. If the year following that, your rate of interest increases by another point, your rate of interest will turn out to be 8.5%. Assuming that you nonetheless haven’t made any payments towards your principal, your monthly payments will become $558.90.

In 3 years, therefore, your interest rate payments will change from 427.40 to $493.15 then to $558.90. Assuming that every specific interest rate sticks around for a year, your interest rate payments in three years will quantity to $17,753.42.

On the other hand, if you altered to a fixed rate of interest now, you are able to save yourself cash on future interest payments. For example, you can replace your 6% adjustable rate mortgage with a 7% fixed-rate mortgage refinance. This may really make your present interest rate payments higher at $460.27 but this may result in savings of around $32.88 next year and $98.63 the following year. In this fixed-rate loan, your interest payments in 3 years amount to only $16,569.86 – yielding a total savings of $1,183.56 in interest rate payments.

Of course, present and future savings aren’t the only considerations when deciding to refinance. You should also weigh your savings with the costs of refinancing. Whenever you refinance, you will also spend various loan processing fees as well because the origination fee. Compute the costs of a mortgage refinance and compare it together with your projected savings. Refinance only if your savings will be higher than the costs.

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A good Loan Modification will allow you to afford your mortgage payments and help avoid foreclosure. Loan modification companies can help get you approved. Go here for more information: Behind On Mortgage Or for Loan Modification Help, Call 888-766-3693

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