Everyone who owns a home knows firsthand the financial obligations involved. A sizeable portion of your monthly income is delegated to a cover a number of expenses, the largest being the mortgage.
Simply put, a mortgage is a long term loan that's repaid over a period of time. Most mortgages are set on a monthly payment basis, while others are ""accelerated"" to allow the borrower bi-weekly or weekly payment options.
As with all loans there is an interest rate. A lower interest rate means lower payments, so it's best to shop around for the lowest possible rate. Even if you have ""locked in"" with a plan at a set rate, it may be possible to refinance your mortgage to take advantage of a lower interest rate.
There are two basic types of mortgages: fixed, and floating. A fixed rate mortgage locks the borrower in to pay one rate for the full term, where a floating arrangement means that the rates, and payments, can be higher or lower. Both types of mortgages have benefits and downfalls, and your particular situation will determine which plan is best for you. Homeowners generally use mortgage refinancing as a tool to move from a higher adjustable rate mortgage to a lower fixed rate mortgage.
In our prevailing market, mortgage rates will change on a regular basis. If you have already committed to a loan at a higher rate than today's interest rate, you might want to consider mortgage refinancing. When you refinance your mortgage, the full payment of your current agreement will be entered into a new loan at today's interest rate. This can be a wise move when rates drop dramatically, by two points or more. Watch the prevailing interest rates and compare them to what you're currently paying.
Should you choose to refinance your mortgage, there are important factors to consider. If there are only a few years remaining on your mortgage term, it just doesn't make sense to commit to a lengthy new term. Mortgage fees and borrowing costs can also come into play. Some banks and financers will charge fees for closing a mortgage early. There may also be prepayment fees on new mortgages, and closing costs on new agreements. Ask questions of your lender and read fine print before committing to any new mortgage agreement.
Refinancing your mortgage can also bring extra cash when you need it. If you have built a significant amount of home equity, you can use mortgage refinancing to obtain a home equity loan. In this case, you can use your home equity to generate cash. The proceeds from mortgage refinance can be used for various purposes, like debt consolidation, home improvements, or as a college fund for your children. Many people wisely use mortgage refinancing to consolidate their debts. Choosing one monthly payment over many bills is not only easier, but it saves you a lot of money by avoiding higher interest payments from credit cards and private lenders. Your pocketbook, and your credit rating, will look a lot healthier.
If you need cash, are faced with mounting debt or are locked into a lengthy mortgage at a high interest rate, speak with your bank about mortgage refinancing.
About the author: Author Trevor Goald loves writing for several well-known web sites, on home security and home buying issues.You can get a unique content version of this article .
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