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Free Mortgage Refinance Information: Home Equity
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Published: October 25, 2006
Many variables need to be taken into account when you are considering refinancing your home.
Are you refinancing to reduce the interest rate on your mortgage? Are you refinancing to liquidate your equity to pay off other existing debts, such as credit cards or car payments? Whatever the reason, knowing the essentials of refinancing is beneficial before making a decision.
For a home mortgage, the principal is the initial amount of the loan attributed to your property. The interest rate is the percentage applied to the principal which the homeowner pays monthly. Interest rates fluctuate with the economy based on taxes and property location.
Refinancing a mortgage sets the interest rate at a fixed amount. This is helpful if interest rates increase drastically. Typically, refinancing is done to pay off part of the initial principal set for the property. The savings acquired from the difference between interest rates can be applied to the existing principal.
Refinancing also allows the property owner to liquidate part of their home equity. This equity can be applied to anything the homeowner chooses. If the equity is applied to existing debts, such as credit card or car payments, this debt transfers from non-tax deductible to tax deductible debt, ultimately saving the homeowner extra money.
Depending on the refinancing plans, additional costs could be added to the total. For instance, closing and transaction fees accumulate during the life of the loan. Mortgage companies usually require the homeowner to pay points or premiums on the initial loan up front. Points are measured as a percentage of the initial loan. For example, three points is equal to 3 percent of the principal. Some mortgage companies will decrease the interest rate if the homeowner is willing to pay higher percentage points. One must take into consideration the closing costs, transaction fees and initial upfront cost of refinancing to determine if refinancing a mortgage will ultimately save money or be more costly.
Another point to take into consideration is the duration of the mortgage. Refinancing a mortgage increases the duration of your existing mortgage although the interest rates and mortgage payments are lower. The extra duration added to the mortgage may ultimately cost the homeowner more than refinancing a home.
To determine whether refinancing would be beneficial, banks and mortgage companies offer mortgage calculators which evaluate factors such as current mortgage payments, interest rates, duration of the mortgage, insurance costs, closing fees and transaction fees.
Consult a mortgage professional or your local bank to receive information particular to your refinancing needs.
Sources:
Larson, Michael D. "When NOT to Refinance." BankRate.com. 30 January 2004. BankRate.com. 25 October 2006. http://www.bankrate.com/brm/news/mtg/20010105a.asp ?prodtype=mtg&thisponsor=refi
"How to Refinance Your Home." eHow.com. 25 October 2006. http://www.ehow.com/how_7553_refinance-home.html"Refinancing." Wikipedia: The Free Encyclopedia. 25 October 2006. http://en.wikipedia.org/wiki/Refinancing
Are you refinancing to reduce the interest rate on your mortgage? Are you refinancing to liquidate your equity to pay off other existing debts, such as credit cards or car payments? Whatever the reason, knowing the essentials of refinancing is beneficial before making a decision.
For a home mortgage, the principal is the initial amount of the loan attributed to your property. The interest rate is the percentage applied to the principal which the homeowner pays monthly. Interest rates fluctuate with the economy based on taxes and property location.
Refinancing a mortgage sets the interest rate at a fixed amount. This is helpful if interest rates increase drastically. Typically, refinancing is done to pay off part of the initial principal set for the property. The savings acquired from the difference between interest rates can be applied to the existing principal.
Refinancing also allows the property owner to liquidate part of their home equity. This equity can be applied to anything the homeowner chooses. If the equity is applied to existing debts, such as credit card or car payments, this debt transfers from non-tax deductible to tax deductible debt, ultimately saving the homeowner extra money.
Depending on the refinancing plans, additional costs could be added to the total. For instance, closing and transaction fees accumulate during the life of the loan. Mortgage companies usually require the homeowner to pay points or premiums on the initial loan up front. Points are measured as a percentage of the initial loan. For example, three points is equal to 3 percent of the principal. Some mortgage companies will decrease the interest rate if the homeowner is willing to pay higher percentage points. One must take into consideration the closing costs, transaction fees and initial upfront cost of refinancing to determine if refinancing a mortgage will ultimately save money or be more costly.
Another point to take into consideration is the duration of the mortgage. Refinancing a mortgage increases the duration of your existing mortgage although the interest rates and mortgage payments are lower. The extra duration added to the mortgage may ultimately cost the homeowner more than refinancing a home.
To determine whether refinancing would be beneficial, banks and mortgage companies offer mortgage calculators which evaluate factors such as current mortgage payments, interest rates, duration of the mortgage, insurance costs, closing fees and transaction fees.
Consult a mortgage professional or your local bank to receive information particular to your refinancing needs.
Sources:
Larson, Michael D. "When NOT to Refinance." BankRate.com. 30 January 2004. BankRate.com. 25 October 2006. http://www.bankrate.com/brm/news/mtg/20010105a.asp ?prodtype=mtg&thisponsor=refi
"How to Refinance Your Home." eHow.com. 25 October 2006. http://www.ehow.com/how_7553_refinance-home.html"Refinancing." Wikipedia: The Free Encyclopedia. 25 October 2006. http://en.wikipedia.org/wiki/Refinancing
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