Refinance

Refinancing can help you replace an existing loan with another loan, which has different rates and terms. Before you refinance, you need to consider whether it is the right option for you.

 Mortgage loans are often refinanced to get a lower interest rate or to reduce the monthly payments by extending the period. Home mortgage refinancing can help you to change from a variable rate to a fixed rate, or to raise money for paying off debts, financing home improvements, buying a car, etc.

Home refinancing can help you to pay off or consolidate loans that have high interest rates, such as credit card dues. You can replace them with a single loan that has a lower, fixed interest rate.

 If there is a reduction in interest rates, refinancing your high-interest mortgage at a lower rate can help you to save a lot of money. Replacing a variable-rate mortgage with one that has a lower, fixed interest rate can also help you to avoid the risk of future increases in your monthly payments.

 Mortgage refinancing also makes sense if there is an improvement in your credit score, or if you can provide more collateral than you could when you took the mortgage.

However, prepayment fees may be applicable when you repay your old mortgage, and you will have to pay closing costs and fees when you refinance. If you use an online mortgage calculator to evaluate the costs and benefits of home refinance, you may find that these prepayment fees and closing costs outweigh the benefits of refinancing the loan.

Mortgage loan refinance may be right for you if you have a high credit score and are planning to stay in your home for a long time. Refinancing may not make sense if you are planning to move out in a year or two. This is because even though you may save a lot on the monthly payments, you will not be in the home for long enough time to recover the prepayment fees and closing costs.

 You can get the most benefit from mortgage refinance, if you do it after you have built up a significant amount of equity in your home. If you have a non-delinquent, FHA (Federal Housing Administration) insured mortgage, and have sufficient equity in your home, lenders may offer you streamline refinances, in which the closing costs are included in the refinanced mortgage amount.

Use an online refinancing calculator to analyze the costs and benefits of getting a refinance loan, and seek the advice of a few independent financial advisors before you make up your mind about whether it is the right option for you.

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