What Does it Mean to Refinance Your Mortgage?

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Every day companies appear on the various media, urging you to refinance your mortgage, but very few of them ever take the time to clarify what exactly a mortgage refinance entails. If you are considering taking the steps to do a refinance, here’s what you need to know.What Does “Refinance Your Mortgage” Really Mean?When you refinance your mortgage you are essentially going to be replacing your existing mortgage with a new one. This allows you to take advantage of opportunities to obtain a lower interest rate and capitalize on your home equity a little earlier than previously anticipated.There are a number of reasons that may cause you to make this decision. You may want to lock in a lower interest rate, taking advantage of the swings in the housing market or your new credit status. You may be trying to escape from an adjustable rate mortgage, an idea that sounded great when you first considered it but has turned out to be slightly less beneficial than anticipated. You may also do it because you need a sizable chunk of extra cash and it’s the most expedient way of obtaining it. Whatever your reasons, you stand to gain quite a bit when you refinance your mortgage.What are the Risks When You Do a Refinance?There are actually very few risks involved with refinancing, particularly if you take the time to do your homework and lock in a great loan rate. The true dangers in refinancing come when you fail to research your options prior to signing on the dotted line. You may find yourself shackled when you refinance your mortgage with a loan that carries a higher interest rate than the original. You may also find yourself having to pay for personal mortgage insurance where you didn’t have to previously due to having less capital at your disposal for a down payment, thereby raising your monthly payments past the point of good savings.There is also always the chance that you will choose to refinance your mortgage, stretching out the length of your repayment term, only to discover two or three years down the road that you want to sell your home. You now have a brand new loan standing in the way of obtaining a mortgage to purchase a new house-something you are certainly going to want to do before you sell your old one!How to Find the Best Deal on a Mortgage RefinanceThe best place to start when you’re looking for a great deal on a refinance is your own back door. Most financial institutions deal with refinancing, and if you have established a reputation for yourself with a particular bank you will have a better chance to refinance your mortgage at a great interest rate than if you come to the loan officer as an unknown face. Regardless of where you choose to do your refinance, however, it is important that you take the time to do some legwork and compare what other lenders have to offer. Remember that no one stands to gain more from this than you, so take the time to carefully research your options and make the choice that’s best for your mortgage.

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