WHAT IS MORTGAGE REFINANCING?
Mortgage refinancing usually also known as remortgage. The finance of your mortgage again is known as mortgage refinancing. Mortgage refinancing means that you get a new mortgage. With an altered payment plan, you finance it again. For example, when you buy a house and you don’t have enough amounts then you apply for a home loan from the bank, the bank allows the loan for buying you the property but it keeps that property as security that is known as a mortgage. Finance for that mortgage is known as mortgage finance. But what is a mortgage refinance? Mortgage Refinancing is when you swap out your current mortgage loan for a new loan that pays off the debt of the current loan.
COSTS OF REFINANCE
There is a lot of costs for the refinancing of a mortgage. Mortgage finance is not free. Charges like:
- Application Fees: Application is a must for a mortgage refinance and its costs vary from bank to bank.
- Origination Fees: One-time fee for loan preparation.
- Appraisal Fees: To cost the asset value of your mortgage.
- Inspection Fees: Costs for inspecting (if required) your mortgage.
- Closing Costs: Costs of an attorney who take care of closing on behalf of the lender.
BENEFITS OF MORTGAGE REFINANCING
Effect of Interest Rate
One of the most important reasons to mortgage refinance is falling interest rates. Suppose you have taken a loan of Rs 3,00,000 with an interest rate of 10% then the interest rate falls to 7% if in that situation you do mortgage refinancing that you enjoy a profit of Rs 9,000 on your loan. This means, f the interest rate goes down and at that time you refinance your mortgage then you will get a good and remarkable profit for you. The effect of interest rate is one of the most important terms on any financial loan for the borrower.
Monthly payment relief
Tenure means the time period for you have taken the loan like 10 years, 15 years, etc. Some homeowners increase their loan term to reduce their monthly repayment amount. They simply refinance their mortgage to reduce the monthly repayment amount by increasing the loan term.
This is one of the better methods to give some relief to your monthly repayment amount. When you borrow a loan, then you have to repay the amount with interest too, increase in loan term or tenure will give some relief tour monthly repayment and you can adjust your expenses.
Fixed rate and monthly payments
If you want to that your monthly repayment amount doesn’t fluctuate then shifting adjustable-rate mortgage to the fixed rate is a better option for this, if the borrower want to shift from AMR to fixed rate then the borrower can choose to refinance of the mortgage. If interest rate fluctuates your monthly repayment amount will also fluctuate and you may shock to this.
Then replacing AMR to a fixed-rate loan is great. If there are some problems in your monthly expenses and suddenly you got a notification that interest rate goes up and you have to repay the loan amount on month it will take you in serious complication. So from AMR to fixed rate is a better option.
Cash for other purpose
Suppose you refinanced the loan amount that is more then you owe, you will get profit and receive a cash profit for the difference, and this is known as cash-out refinancing. That will be your money now and you can use that as you want. Other, it is a better option that you can also use your cash-out refinancing to pay your other debts. You might be like it at a time or you also might dislike it at a time depends on the situation.
DRAWBACKS OF MORTGAGE REFINANCING
Not In your Hands
There are some things that you cannot control, which are not in your hands and don’t depend on you like interest rates. Suppose you apply for a mortgage refinance and suddenly the interest rates have risen up, then suddenly you will be approved with a higher interest rate which you don’t want to do. This situation of refinancing will ruin you all plans for the refinance of your mortgage.
Effect on monthly repayment
The sudden increase in the interest rate and at that time your mortgage refinance application will badly affect your monthly repayment, your monthly repayment will be higher due to sudden increase in interest rates your financial life will ruin due to this increase in interest rates.
You have to maintain
If this will happen to you then you have to maintain your monthly expenses with more attention. This will ruin your comforts because you are not expecting this to happen and you are not prepared for the next step, what do to?