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What is mortgage refinancingDeciding to refinanceWhen you refinance your home, you seek to replace your current mortgage loan with a new loan that has more favorable loan terms. Usually, you refinance to pay off a higher-interest loan with a loan that has a lower interest rate. However, you may also decide to refinance to replace a fixed-rate mortgage loan with an adjustable-rate loan, or vice versa. After you refinance, the new lender holds a mortgage lien on your home. When you refinance, you can choose to borrow just enough to pay off the mortgage balance you owe. If you have enough home equity built up, you may also be able to borrow an additional amount in what is called a "cash-out" refinancing. You can use this extra amount to pay off other debts such as an auto loan or credit cards. You should evaluate a cash-out refinancing carefully. The Mortgage IndustryIn the recent years, the mortgage industry has witnessed great growth with new policies being implemented and interest rates coming to all time lows. The current interest rate for a 15 year loan is as low as 4.25% where as on 30 year loan is approximately 4.75%. This decline in the interest rates has helped the mortgage industry to pick up pace making it one of the fastest growing industries as of now. This growth in the mortgage industry has reflected in the formation of newer policies and better mortgage programs with lesser known trends such as mortgage refinancing becoming popular. So what is mortgage refinancing all about? Let us find out; What is mortgage refinancing?Mortgage refinancing is the process of attaining a new mortgage loan in order to pay off an existing mortgage with a part or all of the money received by the new mortgage. So why do people do it? Well, it's obvious why people do it; lower interest rates, of course! Why refinance mortgage?Mortgage refinancing is a great way to reap maximum advantage of the low interest mortgage loans available in the market at present. By paying off your old mortgage with the refinanced loan, you become liable to pay lower interest rates on the new loan. Not clear? Well it's quite simple. On refinancing, when the mortgage market is booming, you get a loan at low interest rates, which you can use to pay off any pervious mortgages or debts which bear a higher interest. One more reason why people refinance is to lower the actual duration of the loan payment. Now this is very obvious; as the interest rate decrease the mortgage term also reduces automatically. Things to keep in mindIn a way refinancing can be beneficial but at the same time it has its own downsides too. In most cases refinancing is nothing but a gamble and if you don't play it right, you are bound to loose. There are certain things you got to do before refinancing. One of them is studying and understanding of the markets; do a break even analysis if possible to find out exactly how much you are going to save. Unless otherwise, always try and refinance your first mortgage than going for a second mortgage and most importantly sign a well defined document with rate locking details. So if you are planning to use the trick, you got to do it without much ado; cause markets have never looked so good this far. But one thing you got to keep in mind before refinancing is that no matter what, risk is always involved. So keep your eyes and ears open. |
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