Refinancing Loan

There can be many reasons why a homeowner would want a loan to refinance a mortgage. The most common reason is that interest rates have dropped since the mortgage was originally taken out and refinancing would save the homeowner money on his or her mortgage payment each month.

It could also simply be that the homeowner wishes to take out some or all of the equity, difference between what you owe on your property and what your home is currently worth on the open market, which has accumulated in the home to spend however the homeowner sees fit.

Broken down into its basic parts a loan to refinance a mortgage is a very simple thing to understand: a new first mortgage loan is used to pay off and replace the original first mortgage loan.

When does getting a new loan to refinance a mortgage make the most sense? For most people that is basically a question of math. When interest rates drop by one percent or more then it is time to consider refinancing your first mortgage.

Because of the fees that are involved whenever you refinance a mortgage, loan origination fees, appraisal fees, plus other fees, it is usually recommended that the homeowner plan to live in the home for at least three more years for a refinance to be truly cost effective, as it will take three years of monthly mortgage savings to pay for the fees associated with refinancing a mortgage. After three years the homeowner will begin to see true savings that can add up to a considerable amount over the lifetime of the loan.

Since the paperwork involved in refinancing a mortgage is virtually identical with the paperwork required for the original loan, there is generally no particular benefit to the homeowner in getting a loan to refinance a mortgage from the same lender who originally financed the loan. While it may seem more convenient to use the same lender, a borrower would be better served by comparison shopping lenders and choosing the lender with the lowest rate and the fewest fees.

While refinancing a first mortgage may make sense on one level whenever interest rates fall by at least one point, it should be kept in mind that many lenders will require the new loan that is replacing your original loan to be for a full 30 years. This can be a significant psychological blow if, for example, the homeowner had already paid off 15 years on the original loan and now must start from square one.

If this is the case, it may be worth while to specifically ask the lender if they will structure the new loan with the same number of years until payoff as the original loan had left. Lenders won’t always offer this option, but it is often available to those who ask.