Refinancing refers to the replacement of an existing debt obligation with a debt obligation under different terms. The most common consumer refinancing is for a home mortgage.
A loan (debt) can be refinanced for various reasons:

– To take advantage of a better interest rate (which will result in either a reduced monthly payment or a reduced term)
– To consolidate other debt(s) into one loan (this could result in a longer term)
– To reduce the monthly repayment amount (this will result in a longer term)
– To reduce or alter risk (e.g. switching from a variable-rate to a fixed-rate loan)
– To free up cash (this could result in a longer term)

Before deciding, the borrower needs to understand all related factors. A house may be the most valuable financial asset, so the borrower will want to be careful when choosing a lender or broker and specific mortgage terms. One has to remember that, along with the potential benefits to refinancing, there are also costs.

Refinancing is however not a good idea when one has had a mortgage for a long time or the current mortgage has a prepayment penalty or if one plans to move from his/her home in the next few years.

Refinance help can be sought from refinance lenders who look for stable income, a good credit history, and a situation where the amount of the loan is less than the value of the property. They would help one through the various steps that would be involved, which would be similar to getting a first mortgage but with a few important differences. One will not need to go through a pre-approval process or find a realtor and buy a house. Unfortunately, there will still be a lot of paperwork to do.

The help would come in the form of the following steps:

1. Determining if refinance is the right option for the individual
2. Check the credit reports and scores
3. Research rates, fees and lenders
4. Contact current mortgage servicer
5. Contact other lenders

Before taking the decision to refinance one’s home loan, one may want to answer some questions.

● Am I seeking to lower my monthly payments?
● Do I want to consolidate debt?
● Need cash for large purchases?
● Am I seeking to adjust my interest deduction expense for tax purposes
● Have interest rates fallen? Or do I expect them to go up?
● Has my credit score improved enough so that I might be eligible for a lower-rate mortgage?
● Would I like to switch into a different type of mortgage?

The answers to these questions will influence one’s decision to refinance one’s mortgage.
Once the decision to seek refinance is taken, there would be other refinancing questions to be answered, like:

1. Am I eligible to refinance?
2. What will refinance cost?
3. What is “no-cost” financing?
4. How to calculate break-even period?
5. How to shop for the new loan?

Choosing a mortgage refinance may be the most important financial decision one will make. One should get all the information one needs to make the right decision. Asking questions about loan features when one talks to lenders, mortgage brokers, settlement or closing agents, attorney and other professionals involved in the transaction, and to keep asking until one gets clear and complete answers.

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Category: Finances
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