Mortgage Refinancing - 3 Strategies to Lower Your Monthly Mortgage Payment

If you are a homeowner in need of a lower monthly payment, mortgage refinancing could be your answer. There are a number of ways to reduce your payment amount, even if you do not qualify for a lower interest rate. Here are several strategies to help you reduce your monthly payment and save money when mortgage refinancing.

I. Mortgage Refinancing For a Lower Interest Rate

The most common way for homeowners to lower their mortgage payment is by qualifying for a lower interest rate. This is the most desirable method as the amount of finance charges you pay over the life of the mortgage decreases significantly by qualifying for lower interest rate. If your financial situation has changed since purchasing your home, you might easily qualify for a better interest rate when mortgage refinancing.

II. Mortgage Refinancing to Consolidate Your Bills

If you carry a significant amount of credit card and consumer debt, mortgage refinancing with cash back could help you take back control of your budget and save you a lot of money. When you take cash back when mortgage refinancing, you are borrowing more with the new loan than you owe on your existing mortgage. The difference between your two loans is paid to you by the lender and you can use this money to pay off your existing debts. The advantage of consolidating your debts when mortgage refinancing is that you will only have one payment to make each month that will be significantly lower than what you are paying out now. You will also gain a tax deduction for the entire amount of your debts when mortgage refinancing.

III. Mortgage Refinancing - Lower Your Payment Amount by Extending the Term

Term length is the amount of time the mortgage refinancing lender allows you to repay the loan. The most common term lengths are 15 and 30 years; however, there are now 40 and 50 year mortgages that allow you to lower your payment as much as an interest only loans, but without the risk of adjustable interest rates. If you already qualify for a lower interest rate when mortgage refinancing, choosing a longer term will lower your payment even more. If you are unable to qualify for a lower interest rate, you can still significantly reduce your payment amount by choosing a 40 or 50 year mortgage.

The downside of choosing a long term mortgage is that you will pay more to the lender for financing your mortgage. If you plan on mortgage refinancing again when your financial situation improves, long term mortgage refinancing is an excellent alternative to riskier interest only and option loans. You can learn more about mortgage refinancing while avoiding costly mistakes by registering for a free mortgage guidebook.

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Pros and Cons of Mortgage Refinancing

Homeowners enter into mortgage refinancing for various reasons. The most common is to refinance real estate when interest rates drop. Borrowers who obtain an interest rate reduction of as little as one-half percent can save thousands of dollars over the term of the mortgage note.

Mortgage refinancing is oftentimes used when homeowners want to cash out their home equity to obtain a lump sum of money. Home loan interest rates are significantly lower than most types of credit. When homeowners need funds for a major purchase or financial investment, it is sometimes less costly to refinance a home mortgage loan than use credit cards or obtain an unsecured loan.

Refinancing home loans is similar to taking out the original mortgage loan. Borrowers are required to submit a loan application and pay associated fees. Sometimes credit paperwork is waived when borrowers work with their current lender.

Although obtaining mortgage refinancing through the current lender can be easier, it is a good idea to shop around for home loans. The Internet is a good option which allows individuals to determine which mortgage lenders offer the best deal.

When researching mortgage refinancing costs it is important to read the fine print. Realize you are placing your home on the line, so embark on due diligence to ensure you are working with a trustworthy mortgage lender. If necessary, consult with a mortgage broker, home loan specialist, real estate lawyer, or housing counselor.

The Department of Housing and Urban Development (HUD) offers listings of nationwide housing counselors via their website at hud.gov. HUD devotes an entire section to mortgage refinancing advice and provides lender comparison guides and financial worksheets to help homeowners make informed decisions.

Borrowers should review their current home loan contract to determine if their lender imposes a prepayment penalty. Lenders are required by law to provide a Truth in Lending Disclosure Statement (TIL) when providing home mortgage loans. Many people do not read TILs and are surprised to learn they will be financially penalized for paying the loan off early. Homeowners with two or more mortgages can take a hard financial hit.

In addition to prepayment penalties, closing costs are associated with mortgage refinancing. Closing costs include loan application fees, origination costs, real estate appraisals, land survey, title search and insurance, and legal fees. Closing settlement costs can be upwards of 6-percent of the outstanding principal and interest.

Some mortgage lenders offer no-cost home loans, which typically cost more than paying closing costs upfront. With no-cost mortgage refinancing, settlement fees are rolled into the loan. Borrowers may interest on closing costs for the duration of the loan. Settlement costs of $12,000 could cost borrowers an additional $18,000 in interest on a 30-year mortgage note.

Mortgage refinancing does offer financial benefits. However, borrowers must calculate the true cost of refinancing and consider the advantages and disadvantages of entering into a new home loan. Homeowners should only refinance mortgages if doing so makes financial sense.

Chances are your home is your most valuable asset and every effort should be taken to protect it. Making poor financial decisions or refinancing to obtain money for unnecessary items can place your property at risk for foreclosure. Take time to fully understand the risks before extending the terms of your mortgage loan.

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How to Get the Best Deal on Mortgage Refinancing

Mortgage refinancing is a totally separate part on mortgage loans. Refinancing is set up to realize that you are a potential customer that already owns your home and are not applying to buy a home or another home, as in a move up or down. You are simply wanting to improve on your interest rate or term of your mortgage loan or both.

Mortgage lenders are well aware of your intent and can focus immediately on getting you what you are after, with a very limited number of questions. Typically, the refinance mortgage loan officer will ask what do you intend to accomplish with refinancing your mortgage loan.

The beneficial purposes of refinancing mortgages are to capture a greatly reduced interest rate on home mortgages, shorten the life of the mortgage loan, or to take out some equity cash in order to make other purchases. If you are wanting to take cash out, you will be rewriting your new mortgage for a greater amount and this can require a longer and more in depth loan application, since your equity is being virtually removed.

In order to get the best deal on mortgage refinancing you need to shop the current interest rates, but you also need to watch the discount points, as well as junk fees. The discount points can vary among mortgage lenders and this can be a considerable amount of money if the discount points are higher on a lower interest rate loan. Junk fees are another aspect that needs consideration when trying to get the best deal on your new refinanced mortgage.

Mortgage lenders tend to hide additional fees into their loan agreements, that basically adds an additional cash benefit to their loan in their favor, hoping you don't ask or question those expenses. Keep in mind the mortgage company is not as concerned about you a they are about making money.

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