There are a number of advantages that come when you take out a mortgage, the least of which being that you get to own a house. A mortgage is by far the easiest and most convenient way to owning a home, as opposed to saving to buy the house up front.
But, have you thought of the benefits that exist for refinancing your mortgage? The next question you’re probably having at the moment is how you can conveniently refinance your mortgage.
You can learn more on the benefits that refinancing a mortgage can have by reading below. Info on how you can finance your mortgage can also be found here among other ideas concerning the refinancing of your mortgage.
What Is Involved in Mortgage Refinancing?
What is mortgage refinancing in the first place? You probably have heard the word a number of times but haven’t gotten a clear indication of what it’s about because you have probably not had a need for it. Refinancing is taking up another loan to pay for the loan that you already have.
For example, and this doesn’t include mortgage refinancing, you take out a loan of $1,000, then take out another loan of $1,500 and use the second loan to pay off the first loan. That, in essence, is how refinancing works.
Note that the second loan should be a better loan, both in terms and interest, as opposed to the first loan. And, you should also look to improve your finances with the second loan.
How to Refinance a Mortgage
The process and the terms of refinancing a mortgage are quite different, as each lender has their own set of requirements and such. But, a typical process for all lenders is almost the same, and here’s how it typically goes.
The first thing to measure when you are looking at mortgage refinancing is that you need to have another loan. You should be looking to improve on your existing loan when you’re looking at refinancing; it shouldn’t be about incurring other debt.
Now, shop for a lender that offers the best rates – better than your previous ones. You don’t want to finance two loans while you’re at it, so the second one needs to be able to pay off the current one that you carry.
After you have found that lender that is offering you better terms, apply for the loan. Application for loans today are quite easy, as you can even apply from the comfort of your home. Ensure you go through all the paperwork and have a clear picture of the loan first.
If and when your application is successful, pay for the current loan with the money from the second loan. The second loan, in an ideal situation, should be able to pay off the first loan entirely, fees and interest included. Lastly, since your previous loan has been paid off, start paying off the second loan until it is paid off.
Constants in Mortgage Refinancing
When you refinance a mortgage, terms will change, and in some scenarios, even the loan period may change. But, there are constant factors that remain the same even if you refinance your mortgage.
The first constant is debt. You are now not debt free merely because you have paid off yout first loan. You still have debt on the second loan that you have to pay for. In some cases, you may find yourself in even more debt than you had anticipated due to refinancing. You need to ensure that you pay close attention, as you may have to pay a fee for early payment of your first loan.
The second constant is collateral. Whatever the asset is that you pledged on your first loan may still be required for the second loan. The same way you could have lost your house had you defaulted on the first loan, is the same way you can lose your house if you default on the second loan.
Mortgage refinancing has its own set of benefits – one being getting better terms for the second loan. This should only be done when you find a lender that is offering better terms on mortgages. Here’s how you can refinance your existing mortgage and what remains despite the refinancing of the mortgage.