Refinancing Home Mortgage: Understanding Your Options

FinanceMortgage & Debt

  • Author Wesley Pritchard
  • Published February 6, 2010
  • Word count 802

If you’re a homeowner facing a need for a large amount of ready cash, the time has never been better for refinancing your mortgage. With interest rates near all-time lows, homeowners are in a great position to get a mortgage with a better rate than they currently have, and draw from some of the equity they’ve built up in their home since they received their current mortgage.

Refinancing an existing home mortgage has a number of benefits for homeowners today. As mortgage rates have fallen, the opportunity has developed to save literally thousands or even tens of thousands of dollars over the life of an average home mortgage. Even a half a percentage point can make a significant difference when spread over the life of a 15 or 30-year mortgage. If your mortgage was written a few years ago, chances are very good that you could benefit by refinancing to obtain a lower interest rate than you’re currently paying.

In addition to refinancing your mortgage in order to obtain a lower interest rate, you may also want to reconsider the term or duration of your loan. Refinancing is a great time to shorten the length of time your loan needs to be repaid, or to extend it in order to provide a little relief to your budget.

Many homeowners decide to refinance in order to gain access to the equity in their homes. Simply put, equity is the difference between what you owe on your home and its overall value. Refinancing to gain your own access to that equity is a great way to meet financial obligations while paying a low rate of interest.

Once you receive your money, there are no limits on how you spend it. However, there are a few financially wise moves you might want to consider to help you make the most of your refinanced mortgage.

Many homeowners refinance mortgages to pay off higher-interest loans, like credit card debt and other loans, with low-interest money. Using low-interest money to repay loans that may be charging 20 percent or more makes good financial sense.

Refinancing proceeds are also commonly used to finance home improvements and major renovations that can have a big impact on your quality of life and the enjoyment you receive from living in your family home. Renovations and improvements can also boost the equity you have in your home, and can make it much more marketable to potential home buyers when you decide it’s time to sell. Using your mortgage proceeds to boost your home’s equity is another great way to compound the advantages of your refinance.

Still other homeowners refinance their homes when a major life event is approaching. Refinancing can provide ready cash to pay for your child’s college or wedding, or to fund a dream vacation or reunion.

When considering a refinance, you have a few options with regard to the type of mortgage you might need. The most common type of mortgage is a conforming mortgage, which meets mortgage value limits set by federal agencies – currently, the upper mortgage limit set by these agencies is $417,000 for the contiguous U.S. and Puerto Rico, and $625,000 for other areas of the U.S. Conforming mortgages typically only loan up to 80 percent of a home’s market value. Non-conforming loans include loans that offer more than 80 percent of a home’s value, as well as those that finance homes that exceed the upper value limits set by the government.

Once you’ve determine the type of home mortgage that’s right for your needs, it’s time to search for the best lender. The Internet can be a great place to look for lenders, with many specialty sites offering a feature that allows you to compare the mortgage rates and terms being offered by multiple lenders. You can also visit the websites of individual banks and lenders, or look in the Sunday edition of most major metropolitan newspapers, which usually offer a table of local mortgage lenders and their rates and terms in the homes or finance section. Friends, co-workers, and relatives may also be good sources of information on mortgage lenders.

As housing sales have slowed, mortgage lenders have become hungrier for business. As a result, in addition to benefiting from lower interest rates, homeowners are also in a great position to negotiate for lower rates and fees. By considering more than one lender, you can help spark some friendly competition that can net you big financial rewards.

As homeowners across the country are learning, today’s low interest rates make refinancing a smart financial decision. With rates near historic lows, chances are this could be a once-in-a-lifetime opportunity to slash thousands of dollars or more from your mortgage – money you can use instead to finance your own dreams.

Wesley Pritchard is a freelance writer who writes about refinancing home mortgage .

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