Refinance home loan is something that we see and hear all of the time, but what is it about actually? Refinancing a home loan means that you will be getting a new housing loan for a lender on the outstanding balance of your existing home. The money that you obtain from this new housing loan will be used to offset whatever balance amount that you are still owing your previous lender.

If you are planning or intending to refinance your home loan, there are certain things that you need to know first before you proceed. As your home is probably one of your largest single investment, amd as with most of the average Americans, having a proper plan would ensure that you are making the most out of your home loan. A proper home loan refinancing can save you not only your precious time, but also substantial mortgage savings. A wrong decision can cost you dearly and as the saying goes, "Failing to plan is planning to fail".

 Before we begin, you need to ask yourself these questions.

A rough estimate on whether refinancing is a smart choice is to calculate and see if the savings from the reduced mortgage payments would be greater than the total upfront fees and charges of acquiring the new housing loan over the period of time you will be staying in your home. If you can get a substantial savings from this, it would be wise to refinance.

If the interest rate is low and you know that it is about to rise soon, it would be wiser to lock-in a fixed-rate mortgage first while the interest rate is still low. Fixed-rate mortgage is great as it gives you peace of mind. It allows you have predictable cashflow ever month but you lose if the current interest rate is lower than yur fixed mortgage rate. Adjustable-Rate-Mortgage or ARM on the other hand, can cost you dearly when the interest rate is high, but you can save alot on interest when the interest rate is low. It moves according to the market condition. A way to judge where the interest rate is heading can be done by understanding the current inflation rate. Interest rate normally follows the trend of inflation. If the inflation is going up, chances are the interest rate is moving up too. The opposite is also true.

If you existing mortgage loan have a clause that prohibits you from early settlement, usually in the range of any where between one to three years, also called lock-in period, a penalty will be imposed if you refinance. Generally, a penalty of up to 3% is imposed on your loan amount. Yes, you read it right. It is a percentage of your loan amount, and not the outstanding balance that you currently owe. For example, if you have borrowed $300,000 and you still have an outstanding loan balance of $215,000 the penalty of 3% will be imposed on the $300,000 figure, which is a whoppy $9,000 penalty! If your current mortgage is still within this lock-in period, you need to draw your exit plan carefully, and see whether refinancing could save your more even with the penalty imposed. A general rule would be if the new refinancing interest rate is at least about 1.5% to 2% lower than your current interest rate, and depending of the mortgage tenure, it is usually better to refinance that way.

 Finally, before you refinance, do take your time to hunt for a right deal that truly fits your housing need. A great deal would help you save some serious money.