If you are planning to refinance your mortgage loan in the near future, it's time to start your research and education process! The more you learn about mortgage refinancing, the more able you will be to make smart financial decisions regarding your refinance.
We have listed this article first in the refinance articles section for a reason. It gives a basic overview of the mortgage refinance process that will pave the way for your future research.
Basic Elements of Mortgage Refinancing
Let's start with three important concepts that will come into play when you refinance your mortgage. By understanding these concepts, and keeping them in mind when choosing a mortgage lender and mortgage terms, you'll be more likely to make wise decisions. These three concepts are (1) the term of your mortgage, (2) the interest rate associated with the mortgage, and (3) other expenses associated with the mortgage.
1. The Term of Your Mortgage
When you hear the phrase "mortgage term," it usually refers to the length of time (and other conditions) you will have to repay the mortgage loan. For instance, a 30-year mortgage loan is a common term. With this option, the borrower has 30 years to repay the mortgage loan -- unless, of course, he or she chooses to refinance it first.
As logic and math would dictate, a longer mortgage term has lower monthly payments because those payments are spread over more months. And of course the opposite is true -- shorter term mortgages have higher monthly payments.
2. The Interest Rate
All loans have interest rates associated with them, and mortgage loans are no different. When you obtain a mortgage loan, the interest rate is one of the primary "ingredients" that determines the monthly amount you will have to pay.
When it comes to mortgage refinance, interest rates are a key motivator for many homeowners. When you refinance a mortgage and obtain lower interest rates as part of that refinance, you stand to save a lot of money over the long haul. But you need to be in the home (and maintain the new mortgage) for a certain period of time before you reach the "break even" point. After this point, your interest savings will make the cost of refinancing worthwhile.
3. Other Mortgage Expenses
A third piece of the mortgage puzzle to bear in mind is the cost of obtaining the mortgage. This cost is largely determined by the various fees associated with mortgage loans. If you are considering a mortgage refinance, then you have already been through at least one mortgage process in the past. So you probably remember all of those fees and costs that you had to pay on your mortgage -- above and beyond the principal loan amount and interest.
These fees are very important when it comes to mortgage refinancing. They are a key consideration when deciding whether or not it makes sense to refinance your mortgage. A basic rule of thumb when making such a decision is that the money you save from refinancing (over the term of the loan) should exceed the cost of refinancing.
This only makes sense -- you wouldn't want to pay more to refinance the mortgage than you save over the loan's term. That would be a money loser. For this reason, mortgage fees and costs are one of three most important elements of refinancing.
http://www.mortgage-refinance-advice.com/basics-of-refinancing.php
