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Refinancing a Home Mortgage?

Updated on October 18, 2010

Basic Steps to Consider when Considering taking on a Mortgage or Refinancing a Mortgage


This is one of the best times to refinance your home mortgage with some of the best mortgage rates in decades. There is an issue of being able to quailfy for a mortgage or a refinnancing which has become much more difficult than the previous decade. However if you qualify, the rates are as low as they have been in a lifetime.

Home is where the heart is.
Home is where the heart is.

Getting Started

Have you thought about the steps necessary to consider when refinancing mortgage loans? If you're interested in refinancing your home loan, whether it's a fixed loan or a variable mortgage, you will be wrestling with many choices. Which loan you choose will depend on which type of loan you apply for. First you must decide whether to go with a variable rate loan, fixed rate mortgage or home equity loan. It may depend on the loan that you currently have and what type of mortgage or home loan you feel would benefit you the most.

There are several factors that you should familiarize yourself with before you start to shop for a mortgage bank like Wells Fargo, Citi, Barclay's Bank, Emigrant Bank or any other well known lending institutions to refinance your mortgage.

The four most important factors to consider when choosing to refinance your mortgage are rate, type, term and amortization.

1) A low mortgage rate, the actual interest rate on the money you borrow;

2) Whether to borrow at a fixed rate or a variable rate;

3) The term, or length time over which you will be paying off the mortgage;

4) Whether the mortgage or home loan amortizes over time, the actual paying down of the loan. You must choose what best fits your personal needs when refinancing your mortgage.

The new and hopefully low mortgage rate that you plan to apply for in order to refinance is very important but not the sole factor. You certainly want to find a low rate mortgage but that may not be the best mortgage rate after considering many aspects. The best mortgage rate may not be on the best mortgage product for your borrowing needs. Mortgage refinance rates and refinance rates on each product vary from bank to bank. Most banks websites will provide a refinance mortgage calculator which is a fantastic tool to compare offers. Also check to see if your bank provides a list of home mortgage refinance rates on all mortgage loans or home loans.

Secondly, you should choose between a fixed rate mortgage or variable rate home loans or variable rate mortgages. There are many different types of fixed rate mortgages and fixed rate home loans. So you will want to compare fixed rate mortgages and set aside the lowest fixed rate mortgages as ones to choose from. There are even more choices to consider when it comes to variable rate mortgages. When getting a variable rate mortgage you must choose to have your interest move in tandem with an index. Some variable rate mortgages will change twice a year and others will not change for a decade and then will change each preceding year.

Thirdly, the term of the loan is also important. The quicker you pay off the mortgage the less interest you will pay over the life of the loan. However your payments will be larger because you will be paying back more principal with each payment on a shorter loan. This is often a cash flow problem so many people opt for the 30 year fixed loan at the best mortgage rate they can find as opposed to a shorter term like 15 or 20 years.

Lastly you have to ask if you want to amortize your loan in order to actually pay it off over time. This is called amortization. If your loan amortizes it will be paid off over time and your debt will be repaid in full. You will own your property full and clear. If you choose an interest only loan, you will continue to have debt since you are only paying interest on the amount of money you borrowed and are not paying down any principal. Lower payments but you are swimming in place financially. This approach may be good for people who want to better their cash flow on a monthly basis and for people who plan on moving shortly.

Those are the basics of mortgage refinance. A good mortgage broker can explain this all to you in more detail and answer your exact question and give you many choices of mortgage loans or home loans when you are refinancing a mortgage. We hope this gives you a place to start.



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