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Refinancing

Posted by Kelly Chung on January 7, 2009

A refinance mortgage is a financing of a property in which property ownership is not transferred. A refinance mortgage pays off existing mortgages and may even return equity (cash out) to the owner of the property. There are three main reasons why you might want to refinance your home mortgage:

1/ Saving money by paying lower interest rates 2/ Borrowing more money 3/ Changing from one type of mortgage to another

Should you refinance? You must know your current mortgage rate and amount, the mortgage rate for a new loan and your approximate refinancing costs. And ask yourself how long you plan to stay in your home. The largest cost item in refinancing are the points and other fees charged by your lender. Those fees generally range from 1% to 4.5% of your mortgage amount.
For example, the old mortgage rate is 10 percent. The new mortgage rate is 8%. The estimated refinancing costs are about $2300. The annual interest savings by using refinancing are about $1700.  Therefore, it takes a year and 4 months to recover the costs of refinancing. Th savings over 30 years would be $36,000. Lowering your interest rate by as little as 1 percent can save you thousands of dollars.  A prepayment penalty is a hidden cost of refinancing. A typical prepayment penalty might charge from 1% to 3% of your loan amount if you repay your loan less than 3 years. If it does, you may want to wait until the prepayment penalty period is over before refinancing. Check with your mortgage broker.Refinancing

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