Refinancing your mortgage simply means paying off your existing mortgage in order to create a new one. In other words you are replacing an existing debt obligation under different period of time .There are various types of mortgage which you can refinance. Among the things you can refinance are your home , your car, your credit score and many other things. Having a better understanding of all that refinancing entails is always helpful. It is always helpful in the sense that you get to know what you are getting yourself into and what you intend to achieve in the long run! One thing you need to realize before you venture into refinancing your mortgage is that refinancing will only restructure your debt without paying it off.
The most important aim in refinancing is to reduce the interest rate of a mortgage. This is one of the many advantages you get when you refinance. When you refinance your mortgage, you are entitled to getting another loan that is quite different from the current mortgage you have, with a lower interest rate on it. Taking home mortgage as a case study, many home owners enjoy refinancing due to the fact that they have the merit of extending the term of the loan back to thirty years with a reduction in the monthly payments or dues. More so consumer refinancing goes mostly with home mortgage.
Another benefit of refinancing is in debt consolidation. Take for instance, a situation where you have both first mortgage and home equity loan. You can combine the two loans into one fixed-rate mortgage. By so doing you will be able to level out the payments over the term of the loan therefore giving you some kind of relief. While you are carrying out refinancing, always look out for the benefits you tend to get from it. A refinance that offers an interest rate that is at least 2 % points lower than your present payment is advisable.
In addition, tax reduction is another benefit you get when you refinance your mortgage. It means that the interest you are paying in refinancing your mortgage is tax-deductible. The interest is better than the interest you are paying on other bills. Another added advantage of mortgage refinancing is the borrowing option of paying the actual dues. You can also close the cost from a wholesale refinancing lender.
However, refinancing can be difficult at times. This can happen in a situation where the balance of your remaining mortgage is greater than 105% of the market value of your house. In some cases, the disadvantages of home loan refinancing may be greater than an ordinary home loan. This is due to the penalty that is involved which tends to defeat the drawback of the real home debt. Another disadvantage of refinancing home loan is that the lending firm may insist that the borrower pays a certain fine before it provides the borrower with facility of home refinance.
Finally, mortgage refinancing has both pros and cons.The pros involve the ability to extend the period of one's loan.It helps in the area of debt consolidation. And it also gives rise to a tax reduction on the interest rate which also include borrowing option. While the cons of refinancing mortgage include the imposition of sanction on the borrower thereby defeating the drawback of the original home debt. Also the payment of a fine before the provision of a home refinance facility.
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