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Consumer's Guide To Mortgage Refinance Loans
Benefits of Refinancing Your Mortgage
The decision to refinance is not always an easy one to make. Mortgage refinance loans are beneficial to those who acquired the loan during a time of high interest rates and are seeking to lower the interest, therefore lowering their monthly payments. Interest rates fluctuate over time, so if the going rates are lower than when you purchased your house, it may be in your best interest to find a mortgage refinance loan. In addition, your credit score affects your interest rate so if your credit score has improved since the purchase of your home you could also benefit.
If you have an adjustable rate mortgage (ARM), you may want to find a loan with fixed terms to avoid a skyrocketing interest rate in the future. Refinancing can also be done to extend the loan period, which will lower your monthly payments (though it adds to the overall cost in the long-run). On the contrary, you may want to decrease the loan period so you pay your mortgage off more quickly. This would increase your monthly payments but lower the total amount of interest you have to pay overall.
If you can afford the higher monthly mortgage payment, you should also consider paying a little extra toward the principal each month as an alternative to a mortgage refinance loan. The more you pay toward the principal, the quicker your pay off time will be and due to the increased payments you will pay much less in interest on your entire mortgage loan.
Mortgage refinance loans basically trade in one debt for another with lower payments, lower interest or an overall better deal. You can also draw on the equity of your home to pay for emerging needs. While there are many benefits of mortgage refinance loans, there could be added costs as well, so it's important to carefully consider your options and which refinance lender to choose.
Who Should Not Refinance?
It is not a good idea to refinance if you can't pay the minimum amount due each month; that could end up costing you your most valuable asset ... your home.
A mortgage refinance loan may not be right for you if you're planning to move in the near future or if your current mortgage has a prepayment penalty. The monthly savings may not be worth the cost in the long run.
If you've had your mortgage loan for a long time, refinancing might not be the best option. Because payments made on the interest decrease while payments made on the principal increase over the life of the loan, mortgage refinance loans force you to start over and prevent you from building equity because your payments will be mostly attributed to the interest again.
Know Your Mortgage Refinance Loan Rights
There are often hidden fees involved with mortgage refinance loans. Know what you're getting into before you move forward. Some companies will boast about no closing fees but build closing costs into the loan, making your payments higher. Keep an eye out for the following fees at closing:
- Application Fee
- Appraisal Fee
- Closing Cost
- Government Fees
- Homeowner's Insurance
- Inspection Fee
- Loan Origination Cost
- Points
- Prepayment Penalty
- Survey Fee
- Title Insurance
Ask to see your settlement cost papers the day before your mortgage refinance loan closes so that you have a chance to review the terms and verify them with your lender. According to the Federal Truth in Lending Act, in many cases you have three days to rescind a mortgage refinance loan unless it is with the same lender as your original mortgage and no additional funds have been borrowed.
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