Monday, September 18, 2006

Mortgage Refinancing

by Dennis Estrada

Mortgage Refinancing refers to switch from one mortgage to another to obtain substantial benefits. We are surrounded with huge number of mortgage lenders. Each mortgage lender promotes special mortgage options on a regular basis. To be able to know which works best for you, you need to understand how Mortgage Refinancing works.

The main reason to switch a mortgage is to lower the monthly mortgage payments. Mortgage Lenders offer special low interest rate, when you switch or transfer your mortgage to them. The market also determines the interest rate. When the interest rate goes low, it may be a good chance to switch to a better mortgage.

The life of the mortgage is divided into a number of terms. For example, 1, 2, 3, 4, 5 year term are common. When the term of the mortgage matures, the borrower seeks Mortgage Refinancing. The borrower has no choice to refinance the mortgage in this situation.

The borrower can even switch from monthly mortgage payments to biweekly mortgage payments. There are more pay periods on bi weekly mortgage payment than monthly mortgage payment. The borrower pays off the principal twice faster with bi weekly mortgage payment. By the way, the principal is the total amount of mortgage.

The borrower can also switch from fixed mortgage rate to adjustable mortgage rate, or vice versa. Using the fixed mortgage rate, the borrower enjoys the stability of the same mortgage payment on each pay period. For example, the interest rate is low more than usual. To take advantage, the borrower refinances the mortgage with a low interest rate, and locks the mortgage with long mortgage term. The borrower pays less mortgage payment even though the interest rate goes up over the life of mortgage term.

Using the adjustable mortgage rate, the borrower pays a lower than prime interest rate. However, the interest rate goes up or down. The borrower experiences negative amortization when the mortgage payment is not enough to pay off the interest. At this point, the borrower loses equity. To combat negative amortization, the borrower pays higher mortgage payment on the rise of the interest rate.

To reduce the principal and increase the equity, the borrower can elect to pay additional on top of the current mortgage payment. So, the principal gets paid even sooner. At the same time, the borrower pays off the mortgage earlier.

The borrower pays the application fee, title search fee, and appraisal fee on mortgage refinancing. The application fee is the cost of processing the mortgage application. And, the title search fee makes sure that mortgage applicant is really the owner of the property. Finally, the appraisal fee tells the fair market value of the property.

Mortgage Lenders give the borrower many mortgage options. With the proper use of mortgage options, the mortgage options reduce the interest over time, increase the equity, and decrease the mortgage payment. Always, be on the lookout for a better mortgage. There may be a better mortgage that you can take advantage.

Dennis Estrada is a webmaster of mortgage calculators and mortgage dictionary website that gives access to many resources, and calculators for mortgage.

Tags: | | |
Digg!



2 Comments:

Blogger David Ashley Gilbert said...

Your blog entry was very interesting. I am a realtor specializing in Tampa Bay Florida Real Estate .

6:37 AM  
Blogger Oscar A said...

I just landed at your interesting Blog, where I found some brilliant ideas for my new Blog for spanish speaking borrowers.
Oscar Otero (www.oraculohipotecario.com)

6:42 AM  

Post a Comment

<< Home