Am I Eligible to Refinance My Home Mortgage Loan?

Some lenders are now offering loans with up to 125% of your homes' value which will be beneficial for low or zero equity homeowners or even homeowners who owe more then their property is worth.

The process for refinancing is very similar to the process for the application of the original mortgage so determining your eligibility to refinance is similar to the approval process for your original loan. When determining your eligibility to refinance lenders will look at things such as your credit history, income and other assets, debts, the value of the property and the loan amount. Lenders will look at the loan amount versus their assessed value of the home; if housing prices have fallen you may owe more on the mortgage than your house is currently worth and it will not be possible to refinance or your lender will offer you a loan with less than favorable terms.

What are the costs involved with a
Refinance Home Mortgage Loan?

Application fee, loan origination fee, mortgage points, home inspection fees, appraisal and title work fees and your attorneys closing fees. These fees usually amount to 3 to 6 percent of the outstanding principal balance of your mortgage loan.

Cash Out Refinance Mortgage

Lots of home-owners use a cash out refinance mortgage for home improvement, paying off debts, or other investments.

A good financial strategy is to pull cash out of your home to pay off your credit cards, as instead of paying 20% on your credit card, you can pay 5 to 8% for your mortgage that is covering your cash out you used to pay off your credit cards.

Most homeowners enjoy the benefits of a cash out refinancing mortgage for home improvements, that will add value to their property and increase their equity and improve their LTV (Loan to Value)

There are downsides to cash out refinance loans:

You lose your equity as you are beginning your mortgage over again and you are taking on more debt.

Usually you must have owned your home for at least one year before lenders will let you cash out with a refinance loan.

Whether you get cash directly in hand or your credit card and/or other loans are paid off and you receive no actually cash in hand your refinance is still considered a cash out.

There are many costs involved with mortgage refinancing so you should be aware of these. These fees involved attorney fees, closing fees, loan origination fees, points and some other fees. These fees can end up being fairly substantial so it is best to discuss with your mortgage lender about these fees to help make an informed decision on mortgage refinancing.

What is mortgage refinancing and what is the process to refinance a mortgage?

When you refinance your mortgage the process is very similar to applying for a new mortgage. A refinance mortgage is a mortgage that replaces your existing mortgage. You will replace your old mortgage with a new mortgage and you will pay off the old mortgage with the new refinance mortgage. There are many reasons why a refinance mortgage may be the right choice for you:

Mortgage rates are falling.

Take this example:

mortgage rates have dropped from 6% to 5.5% on a 30 year fixed-rate loan of $200,000.

Payments each month at 6.0% would be $1,199
Payments each month at 5.5% would be $1,136
Monthly difference: $63

With this example you will save $22,600 over the life of a 30 year mortgage.

You have an Adjustable Rate Mortgage (ARM)

If mortgage rates are going to rise and you have a 5.5% Adjustable Rate Mortgage and the rates are going to rise to 6% you may decide it is worth it for you to refinance your mortgage to a fixed rate mortgage. From the above example, if the mortgage rates on your loan will rise to 6% from 5.5% you will end up paying $756 more each year.

If you have worked to improve your credit score and can qualify for a new mortgage loan with lower rates.

If you can pay more each month then you do on your existing mortgage loan you may want to consider refinancing your mortgage to build equity faster by reducing the length of your mortgage home loan.

If you are not comfortable paying as much on your mortgage loan each month and you want to reduce payments refinancing your mortgage can be a beneficial financial move.

If you need to consolidate other debts a refinance home mortgage loan can help you achieve this.

While there are many benefits of a mortgage refinance loan there are many dangers and downsides to mortgage refinancing that you need to take into consideration when deciding whether mortgage refinancing is right for you. It is wise to do your due diligence and talk to a mortgage professional who will help you decide if mortgage refinancing is the correct financial step for you.

When is it a bad idea to refinance my home mortgage loan?

You've had your mortgage loan for a long time.

During the early part of your mortgage's life the majority of your monthly payment is going towards paying off interest and not towards the principal of your home, so you are not building as much equity in the first years of your mortgage loan then in the later years. If you refinance your mortgage home loan to a new refinance mortgage loan In addition the costs and headaches of refinancing may not be worth it if your mortgage has almost reached the end of the term of its life.

If you will be moving from your home in a few years.

There are many costs involved with a refinance mortgage loan. If you will be moving from your home in the near future it may not be the best idea to refinance your mortgage loan and you should wait until you move to apply for a new mortgage. If you are moving in the next few years you will have to balance the costs of refinancing a mortgage versus your savings. Talking to a mortgage lender will be helpful. The costs of refinancing range from 3 to 6 percent of the principal left on your mortgage.

Your mortgage has a penalty for terminating the loan early.

Many mortgage loans have a clause called a prepayment penalty which is a fee charged by the lender if you pay off your mortgage loan before it has reached the end of its life. Since you are paying off your mortgage with a new mortgage loan when you refinance this clause will be in effect. However, if you are refinancing with the same lender they will likely waive this fee for you or at least reduce it.