Mortgage Refinancing - Counting the Costs

Mortgage refinancing means paying off your existing mortgage with a new loan, using the same property as collateral. The amount you’ll save by refinancing will vary depending upon current interest rates, refinancing costs and tax consequences.

Mortgage refinancing makes sense if Interest rates have dropped more than two points since you got your original mortgage, or if you want to change from an adjustable-rate to a fixed-rate loan to avoid future interest hikes.

As to the costs of mortgage refinancing; expect to pay between three and six percent of the mortgage, plus any prepayment penalties you might incur by paying off the existing loan. Below are some of the fees and charges you are most likely to encounter. Costs vary widely from state to state and loan to loan. These numbers are average estimates only.

Application Fee ($75 - $300): This charge covers the initial costs of processing your mortgage refinancing request and checking your credit report. Bad credit will result in a higher interest rate.

Appraisal Fee ($150 - $400): This fee pays for an appraisal which is a supportable and defensible estimate of the current market value of the property.

Attorney’s Review Fees ($150 - $300): The lender will usually charge you for fees paid to the lawyer or company that conducts the mortgage refinancing closing. Settlements are conducted by lending institutions, title insurance companies, escrow companies, real estate brokers and attorneys for the buyer and seller. You may want to retain your own attorney to represent you at all stages of the mortgage refinancing transaction.

Loan Origination Fees (Usually 1% of loan): The origination fee is charged for the lender’s work in evaluating and preparing your mortgage refinancing.

Points (1% of loan): Points are prepaid costs imposed to increase the lender’s yield on the loan. Paying points can lower the interest rate, which will lower the monthly payments. Some lenders will roll the points into the loan. The downside is that the borrower will be paying interest on these fees over the life of the loan.

Private Mortgage Insurance (PMI) Usually 0.5% to 1.0% of loan): PMI is required when the amount of the mortgage is greater than 80% of the home’s appraised value. This insurance protects the lender against loss if the borrower defaults on the loan.

Title Search and Title Insurance ($450 - $600): These cover the costs of examining the public record to confirm ownership of the real estate, and the costs of a policy insuring the policy-holder for any loss caused by discrepancies in the title. Be sure to ask the company carrying the present policy if it can re-issue your policy at a re-issue rate. This could save you up to 70% of what a new policy would cost.

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Will Mortgage Refinancing Really Get You Out of Debt?

When you're down and out and undeniably broke, there's nowhere else to turn to. You can humble yourself and ask for help from friends and family. You can take on a second, even a third, job. Or you can take stock of the properties you own and realize that they may just save your life. Mortgage Refinancing may be the last resort. The question is, is it the best? Could there be a better way?

Seeking debt relief?

Dealing with long term mortgage refinancing is no walk in the park. The prudent thing to do when you opt for mortgage refinancing is to compare costs of your current loan with the new mortgage over a given time. If the results show that the new loan gives a lower cost, then get mortgage refinancing. Most people overlook this precaution and jump eagerly into the bandwagon, only to later regret their hasty decision. Instead of getting some relief from their financial responsibilities, they find themselves sinking deeper into debt.

The Internet is your friend at this time of need. With all the mortgage refinancing websites available online, you can take a peek at your options without having to deal with pesky salespeople that are likely to talk you into making a bad decision in pursuit of the almighty dollar. If you are seeking debt relief through mortgage refinancing, use the online calculator available on all mortgage refinancing sites. The results will show how much you will be paying in a given period. You can compare results of the minimum loan period on the new loan to make refinancing profitable. If you see that the break-even period pays, then get mortgage refinancing.

Understanding mortgage refinancing calculators

The calculator will require you to enter your loan balance amount, the interest, and the number of months to pay the loan. The calculator will then segment the costs into three divisions: upfront cost (new and old loan), monthly payments of principal and interest on the new and old loan, and the lost interest on both loans. Calculation will also factor cost offsets like tax savings on interests and points and show the break-even period. The results may show savings of thousands of dollars on the new loan.

For the average person, the online mortgage refinancing calculator is a life-saving device. They can immediately see the monthly payments they will make for a period of time, and the money they can save. The information they get will greatly help them in arriving at a decision.

Lock or float?

Lending institutions make money out of loans by charging interests. Your payment will go to the interests for the first few years. When you get a mortgage, you will be given the option to lock in or float your interest rates. In street parlance, you have a chance to decide on a fixed rate. This is an advantage for you when interest rates go up. You are safely locked in your going rate. When interest rates go down, you still stay fixed in your locked rate, which is a disadvantage.

The same goes for those who prefer to float their interest rates. When interest rates go down for several months, they can save a lot of money - but when these rates stay up and go higher, they have to shell out more than the usual amount. Either way there are advantages and disadvantages.

Do you really need mortgage refinancing assistance?

Your existing loan is drying up your resources and a second mortgage is tempting. Don't fall into the temptation. The interest rates in second mortgages are prohibitive and can even be thrice as high as the initial mortgage. Instead of the second mortgage, get refinancing. If you have a pressing reason to get refinancing, by all means, go ahead. But if it is only to indulge yourself in luxury, forget it. You must not trade your house for an expensive car. In the long run, as interest rates are escalating, you might lose that car and everything else.

Mortgage refinancing may or may not get you out of debt. It will all depend on you. If you are committed to stick to your budget and spend years paying off the loan, then you are a good candidate. Tread carefully when you are getting mortgage refinancing to pay off your debts. You never know what you'll step on.

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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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