Refinancing a home loan requires getting a new mortgage to replace a previous mortgage. Refinancing can be done with the lender who financed the original loan, or it can be done with a new lender. Once the new loan is obtained, the original loan is paid off.
The refinanced loan will be less than the original loan, because it will be minus the amount already paid on the original mortgage. This means the monthly payments can be lowered.
People often refinance in order to get a better interest rate on their loan. Some mortgages have fixed interest rates, which means that the interest will be the same over the entire life of the loan. Other mortgages have variable interest rates, meaning the rate can change during the loan. Refinancing can allow a borrower who had a variable interest rate to obtain a fixed interest rate, which will save them money over the life of the loan.
While refinancing can occur any time for borrowers with good credit, it is important to consider the changes in monthly payments and interest rates that will occur. It is possible to end up paying more in interest or monthly payments during refinancing.
It is best to refinance when you can obtain a better interest rate. Since interest rates change regularly, it is important to stay updated on current interest rates and have a good understanding of how refinancing would affect the interest on the home loan term.
Cash-out refinancing allows a lender to borrow against the amount already paid into the mortgage, known as the equity. The refinanced mortgage is a higher amount than what was owed on the original mortgage, and the difference can be paid out to the borrower in cash or used against other debts.
Sometimes people refinance during divorce settlements or due to home insurance issues that require changes in home loans.
It is best to consult a mortgage attorney when contemplating refinancing a home loan. Because it is possible to end up paying more than the original loan, refinancing can be risky unless it is done carefully. A real estate lawyer or financial lawyer can advise you of your best options and help you negotiate the best rates and loan terms during the refinancing process.
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