How Does Refinancing Work? Your Home Refinance

How does refinancing work, when it comes to refinancing your home?

How does refinancing work, your home refinance

Should be the first question you and your spouse ask yourselves before you decide to refinance your existing home loan.  Recent reports show that some homeowners are borrowing to the constant enticement of lower home loan rates. Considering the continuing low-interest rates on home loans, is it time for you to consider purchasing a home?— Or refinancing your existing home?  Some homeowners are said to be refinancing their existing loan over and over.

If you are in the market for a new home, then this is one of the best times to purchase a primary mortgage. But as far as refinancing, in my opinion, I don’t feel that many of the constantly refinancing homeowners understand all of the facts (and high cost) surrounding home refinancing. A one-time refinance is appropriate if you have done your homework and know that a refinanced loan will be a benefit to you.

If you are in the market for a new home, then this is one of the best times to purchase a primary mortgage. But as far as refinancing, in my opinion, I don’t feel that many of the constantly refinancing homeowners understand all of the facts (and high cost) surrounding home refinancing. A one-time refinance is appropriate if you have done your homework and know that a refinanced loan will be a benefit to you.

If you do not answer the question, How does refinancing work? before deciding to refinance, you could get yourself and your home loan security at risk.

learn how refinancing works after you save

Refinancing an Existing 30-year Loan

1. Each time you refinance to a new 30-year loan, you can go over your 30 year period to 40 years, 50 years and sometimes 60. If a homeowner does this every 5 years for 20 years, then at the end of 20 years you will have 30 years left to pay on your mortgage instead of 10 years had if you not refinanced your original loan. The extra years of interest and principle will substantially increase the amount of money you pay on your mortgage and hence increase the actual cost of your home.

The Solution:
Calculate how many years you have already paid on your home loan. If you have paid on your loan for 15 years, then try for a 10 or 15-year loan if the interest rate is low enough.  Another solution is to get a loan with no pre-payment penalties and pay extra to principle each month to make sure you don’t go over the 30-year mark, or better yet shave your payment years down to 10 or 15 years.

You can do this by figuring out how much you can shave off your total loan by figuring out how much you will decrease your principal amount each year.

Example of a Great Home Loan Refinance

In 2006 mortgage rates were about 6.25, in 2016 mortgage rates were about 3.75-4.00%Say you paid down your mortgage and only have 17 years left. If you refinance from 6.25% to 4% for 15 years. You will save 2 years off your mortgage, and about 2% off your interest rate. The monthly savings and the overall savings on your total mortgage will be substantial.

This is a refinance that is worth it. The savings could be as much as $1000 a month on a $400,000 house. In contrast, if you add years and the interest rate decrease is small you could actually increase your mortgage balance over years.

The Purpose:  The issue becomes, “Why are you getting the refinanced mortgage in the first place?” Are you desperate for money to use for medical purposes, college, or some other dire emergency? Or, are you looking to save money on your overall cost and either put the extra savings into a general savings account, retirement, retire earlier with no mortgage, pay down other bills, or lower your existing payments due to financial stress?

This is a question you must answer and make your intentions crystal clear to yourself and your spouse before you decide to refinance.

how does refinancing work, first use Easy Budget Planner

How Much Will it Cost to Refinance Your Home Loan?

2. It will cost you a hefty sum of money each time you refinance your existing home loan or purchase one for a new home. And even the so-called no-cost loans will cost you. The purchase price of a new loan is either 2%-4% of the new loan or in the case of the no-cost loans; the fees are added into your loan as a higher interest rate.

You will, therefore, pay for the cost included in your monthly payments. It can take as long as four to six years to pay off the cost of your home refinance, so plan to stay put for awhile if you choose to refinance.

Home Loan Resources For Primary and Refinance Loans

3. There are several resources to help you make a wise decision when it comes to choosing a loan for a new home, and understanding how detrimental constantly refinancing your existing home can actually be. Refinancing your home should be a rare consideration and carefully calculated decision before you visit a mortgage company.

Credit unions and your local banks offer the best solutions if you don’t have optimal credit and money saved in a bank or credit union then carefully select a mortgage company.

The U.S. Department of Housing and Urban Development offers numerous resources on its Web site, www.hud.gov, for homebuyers. It publishes an eight-page booklet, “Looking For the Best Mortgage,” which offers advice on finding the best deal. General tips include:

1. Contact several mortgage lenders and brokers for information.

2. Check hsh.com to see what the average mortgage rates are now.

2. If you have a good relationship with your local bank, start with them. Especially if you have a  substantial saving or checking account with them. The mortgage division is usually a separate business in your bank, but a relationship with the bank will make getting a mortgage easier.

2. Obtain all cost information, including interest rates, points, fees, down payment requirements and private mortgage insurance.

3. Negotiate. Mortgage deals vary from day-to-day. Once you find a deal you like, lock it in.

4. Federal law prohibits discrimination in mortgage lending.

5. Understand your credit. If it’s not good, finding a loan could be difficult. To obtain a copy of your credit report, contact www.experian.com. You should know your credit score and examine your credit report before you shop for a refinance. Sometimes credit reports have mistakes and can be taken off by contacting the credit reporting agency before you shop for a loan.

The primary goal for you is to make sure you answer the question thoroughly, How does refinancing work? Before you consider a new loan.

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How does refinancing work, your home refinance

About MsFinancialSavvy

Lois Center-Shabazz, aka MsFinancialSavvy, is a Money Strategist specializing in helping others with Mega-Money Management through her Course For Fantastic Finances at CourseForFantasticFinances.com. Visit "Lois' System" on the top toolbar of MsFinancialSavvy.com and schedule a free personal finance discovery session with Lois.

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