Mortgage 101 - Home Refinancing for Dummies

I'm Not a Home Refinancing Expert, Nor Do I Play One on HubPages

The heading on this capsule is actually a plea. Don't ask me any hard questions about home refinancing, I beg of you.

Having written on a myriad of topics for clients, I have a ton of research that has just been sitting around since completion of the assignments. I figured that since I put all that hard work into finding the information, I might as well make some good use of it.

In the case of home refinancing, I am the dummie but figured that I cannot possibly be the only one who doesn't understand what the banker is talking about as he spouts mortgage information. Naturally, I don't want him to get the idea that I'm not a clever gal, so I put on my best, 'Of course I know what you're talking about' face and nod. Meanwhile, he may as well be speaking a foreign language.

To those of you with the same problem, I dedicate this hub. I want you to know that you're not alone, brothers and sisters, that I'm riding that mortgage dummie train with you. For that reason, the information in here is written in plain, non financial speak English that helps us all understand home refinancing (I hope) a little better.

Warning: I have research notes for a great deal of other topics that I may use to educate you, too. Watch for them and please don't point fingers and laugh.

Home Refinancing

There are ways to free up cash and shorten the term of your mortgage loan
There are ways to free up cash and shorten the term of your mortgage loan

Attention Class, Our First Topic is Cash-Out Refinancing

This one is fairly easy, I think. Cash-out refinancing is simply getting a new mortgage for an amount that is more than what you still owe on your current mortgage. The cash-out part is in reference to the extra money that gives you to pay bills, do some home upgrades, whatever. The good side of cash-out refinancing is the fact that the interest rate is typically lower than that for home equity loans (keep reading, you'll find out about those).

The downside of this type of home refinancing can come into play if you are borrowing more than 80% of what your home is worth, which is a bad idea in my opinion but hey, I'm not an expert. You will probably have to purchase private mortgage insurance if you go this route.

Next We'll Briefly Discuss Home Equity Loans

Very simply, home equity loans can be put in an easy to understand formula:

The market value of your house minus what you still owe on it = home equity loan amount

Easy, huh? Home equity loans are separate from your mortgage, which means there are no closing costs involved. Shop around for the best interest rate on these as it is usually higher than normal home refinancing rates, although that interest may be tax deductible. That's something you need to ask your accountant about. These types of loans may be the way to go if it is not possible for you to get home refinancing due to pre-payment penalties on your current mortgage. Nope, not dealing with those penalties in this hub, sorry.

On To Interest-Only Loans

This one is more for info than practicality. As I understand it, interest-only loans are rare right now, due to the economic climate. Should they become widely available again though, you'll know (sort of) what they are.

If you take out an interest-only loan, you have the option of applying some months of your mortgage payments to only the interest amount of your home refinancing loan. That means that your monthly payment is smaller because you are only covering the interest and not the principal. From what I can gather, this is a good option if you need or want to use some money elsewhere, like in retirement funds, paying down debt, etc.  It's a nice home refinancing option, if you can still find it available somewhere.

Improving Your Situation

Take advantage of home refinancing options but make sure that you understand what you are signing up for
Take advantage of home refinancing options but make sure that you understand what you are signing up for

There Are More Types of Home Refinancing Options

Yes, I'm sure there are more kinds of loans when it comes to home refinancing.  However, I don't know anything at all about them and so will not try to figure out what they are.  Heck, maybe you can educate me.

I did read something about no cost refinancing but I think that means that you don't pay a lot of closing costs or something along that line.

Benefits of Refinancing Your Home

Okay, this is where you get to find out what home refinancing can really do for you:

  • Free up extra cash for things other than your mortgage
  • Get a lower interest rate and lower monthly payment amount
  • Shorten the term of your home refinancing loan
  • Change your loan's interest from a variable rate to a fixed refinance rate
  • If your equity is at least 20 percent of your home's value, you can drop the private mortgage insurance

As you can see, home refinancing may ease your financial burdens and save you money. Discuss it with your mortgage loan professional to find out which options are the best for you and your circumstances. Make him/her explain it to you until you truly understand what he/she is saying, too. It's a lot of your money and you have the right to know what's happening to it.

Best of luck with your home refinancing. I hope this has at least been a little helpful.

© 2009 Shirley Anderson

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Home Refinancing Comments 12 comments

KatieE39 profile image

KatieE39 7 years ago from Colorado

Lots of good information here!


Shirley Anderson profile image

Shirley Anderson 7 years ago from Ontario, Canada Author

Thanks very much, Katie.


Danton Young profile image

Danton Young 7 years ago

What a deal with such low interest rates!


rb11 profile image

rb11 7 years ago from Las Vegas

There isn't a lot of equity left in houses these days, the banks are very tight even if you do have any equity left. I'm afraid the house (aka-atm machine) days are gone for a while, if you can refinance do it soon before inflation hits and drives rates up.

Regards


Shirley Anderson profile image

Shirley Anderson 7 years ago from Ontario, Canada Author

I'm not up on how the housing market is doing in the U.S. but here in Canada, it has taken a big upward turn.  Will things return to 'normal' for home refinancing?  I don't know but I think probably they will.  Everything happens in cycles and we've been through it before.  With any luck at all, the lending companies will come out with some new products that help the consumer.  Okay, it could happen.

Thanks for your comments, Danton and RB.


wandererh profile image

wandererh 7 years ago from Singapore

I stopped reading after "Cash-Out Refinancing" - reminds me too much about integrals and Laplace transforms and pulling teeth.  :(  Nothing to do with your writing though 'cause I liked the first part.

Great hub - if I looking to refinance my home.  :)


Shirley Anderson profile image

Shirley Anderson 7 years ago from Ontario, Canada Author

LOL, Wanderer! I'm not really clear on all this stuff and only know as little as I know because I had to find out about it. Oh, and I have no idea what Laplace transforms is/are but they sure sound exciting. :)

Thanks for the compliment and for taking the time to leave a comment!


scheng1 6 years ago

Good advice on changing variable rate to fixed interest rate through home refinancing.


mortgage company 6 years ago

thanks for the information Shirley! The market can be confusing at times, and having a good resource to learn about options is definitely a time saver!


Shirley Anderson profile image

Shirley Anderson 5 years ago from Ontario, Canada Author

Thank-you, Scheng.

MC, I should be the one thanking you for the feedback. I have a feeling that you know wayyyyy more than I do on this subject!


doodlebugs profile image

doodlebugs 5 years ago from Southwest

We saved over $100 a month by refinancing. It cost us $2,000 to do so, but will see our payback in less than 2 years. Good Hub.


monicamelendez profile image

monicamelendez 4 years ago from Salt Lake City

Haha very honest Shirley. I like when people own up to 'only knowing what they know' about a subject. Thank you!

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