Refinancing refers to applying
for a secured loan intended to replace an existing loan secured
by the same assets. The most common consumer refinancing is
for a home mortgage.
Refinancing may be undertaken to reduce interest costs
(by refinancing at a lower rate), to pay off other debts,
to reduce one's periodic payment obligations (sometimes
by taking a longer-term loan), to reduce risk (such as by
refinancing from a variable-rate to a fixed-rate loan),
and/or to liquidate some or all of the equity that has accumulated
in real property during the tenure of ownership.
Certain types of loans contain penalty clauses that are
triggered by an early payment of the loan, either in its
entirety or a specified portion. Also, some refinanced loans,
while having lower initial payments, may result in larger
total interest costs over the life of the loan, or expose
the borrower to greater risks than the existing loan. Calculating
the up-front, ongoing, and potentially variable costs of
refinancing is an important part of the decision on whether
or not to refinance.
Refinancing can be a good idea for homeowners who:
* want to get out of a high interest rate loan to take
advantage of
lower rates. This is a good idea only if they intend to
stay in the
house long enough to make the additional fees worthwhile.
* have an adjustable-rate mortgage (ARM) and want a fixed-rate
loan
to have the certainty of knowing exactly what the mortgage
payment
will be for the life of the loan.
* want to convert to an ARM with a lower interest rate
or more
protective features (such as a better rate and payment caps)
than
the ARM they currently have.
* want to build up equity more quickly by converting to
a loan with a
shorter term.
* want to draw on the equity built up in their house to
get cash for
a major purchase or for their children's education.
If you decide that refinancing is not worth the costs,
ask your lender
whether you may be able to obtain all or some of the new
terms you want
by agreeing to a modification of your existing loan instead
of a
refinancing.
Should You Refinance Your ARM?
In deciding whether to refinance an ARM you should consider
these
questions:
* Is the next interest rate adjustment on your existing
loan likely
to increase your monthly payments substantially? Will the
new
interest rate be two or three percentage points higher than
the
prevailing rates being offered for either fixed-rate loans
or other
ARMs?
* If the current mortgage sets a cap on your monthly payments,
are
those payments large enough to pay off your loan by the
end of the
original term? Will refinancing to a new ARM or a fixed-rate
loan
enable you to pay your loan in full by the end of the term?
What Are the Costs of Refinancing?
The fees described below are the charges that you are most
likely to
encounter in a refinancing.
* Application Fee. This charge imposed by your lender
covers the
initial costs of processing your loan request and checking
your
credit report.
* Title Search and Title Insurance. This charge will cover
the cost
of examining the public record to confirm ownership of the
real
estate. It also covers the cost of a policy, usually issued
by a
title insurance company, that insures the policy holder
in a
specific amount for any loss caused by discrepancies in
the title
to the property.
Be sure to ask the company carrying the present policy
if it can
re-issue your policy at a re-issue rate. You could save
up to 70
percent of what it would cost you for a new policy.
Check out this nifty mortgage
refinancing calculator.
California Refinance Loans
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