Question

What are the costs and benefits associated with mortgage refinancing to a mortgage borrower?

Answer 1

MORTGAGE REFINANCING:

Mortgage refinancing is a strategy that helps home owners meet their goals.This could mean refinancing to a lower interest rate or refinancing to a different mortgage term. Refinancing a home is a major financial decision and that shouldn't be made without doing all the research.

note:refinancing is not same as second mortgage.A second mortgage gives you money from your home equity.Refinancing gives you an entirely new mortgage,ideally with more favorable terms.

COSTS ASSOCIATED WITH MORTGAGE:

The cost of refinancing a mortgage can vary substantially from lender to lender.having said that,certain fees are more common than others.Here are some of the most common fees that home owners may encounter during their refinance process.

Mortgage application fee:

In most cases,a mortgage application fee is often paid by the borrower at the beginning of the mortgage refinancing application process,regardless of whether or not the refinance is approved.

Appraisal fee:

Before agreeing to refinance a home ,a lender will need to understand what the home's current market value is, and this will require an appraisal by a licensed appraiser.The cost of the appraisal will vary based on number of factors,including the type of loan applying for,the size of the property and whether the bank has an existing relation ship with the appraiser.

Inspection fee:

Whereas a home appraisal is meant to help the lender understand the market value of a property,a home inspection is meant to determine whether a property is structurally sound and livable.this will typically involve inspecting the home's wiring plumbing and structural integrity for issues,as well as looking for exposure to pests and toxins.

Title search:

Before moving forward with the refinancing process,lenders must conduct a title search.this typically involves hiring a title company to research property database,court records and past deeds with the purpose of ensuring that

a) borrower owns the property that they are seeking to refinance

b) there are no liens or claims against the property

Survey fee:

Most lenders will require an official land survey of a property before they agree to refinance a home.this survey is used to mark the official boundary lines of a property.

Loan origination and Document preparation fees:

Also sometimes known as processing fee,administrative fee,"points" or underwriting fee, the loan origination fee is what lenders charge to evaluate,process and prepare a mortgage or refinance.

Recording fee:

To complete the process of refinancing you will typically required to pay a recording fee.this is the cost of making the loan a part of the public record for any given property.

Attorney fees:

Depending on the state, one may be required to have an attorney in attendance at the closing of their loan.even if not required,one may want to consider having an attorney present to review the loan documents and ensure that the borrower understands the loan agreement.

BENEFITS OF REFINANCING A MORTGAGE

A better mortgage rate:

This is the most common reason for refinancing .if mortgage rates have fallen since one took out the loan he can often save money by refinancing mortgage at current rates.

Lower monthly payments:

With a lower interest rate,one can get lower monthly payments as well,particularly if refinanced mortgage has the same payoff date as his old home loan

More predictable costs:

If any one have an adjustable rate mortgage,he may choose to refinance to a fixed rate loan to lock in his rate for the reminder of the mortgage.

Shorten the term:

Many borrowers start out with a 30 year home loan,then refinance to a 15 year fixed rate mortgage after a few years.this allows them to pay the mortgage off faster and save a lot of money in interest over the life of the loan.

Borrow money:

With a cash out refinance one can borrow against home equity to obtain funds for any purpose.since mortgage rates tend to be lower than other types of debt and tax deductible as well,it can be a very cost efficient way to borrow.