Refinancing your mortgage involves the payment of your current mortgage and its replacement with a new mortgage. This new mortgage may be for a larger amount than your current mortgage, generating immediate cash at a low interest rate. Additionally, you may refinance your mortgage for the same amount as your current mortgage but for a lower interest rate. Your new mortgage can come from the lender for your original mortgage or from a new lender.
People choose to refinance for a wide variety of reasons. People often refinance to take advantage of lower interest rates, to move from a variable to a fixed rate mortgage, to combine several mortgages, to consolidate other debt or to finance renovations, education or investments.
If you've noticed that mortgage interest rates appear to be substantially lower than they were when you received your original fixed rate mortgage, you can take advantage of these lower rates with a new mortgage. Similarly, if the variable rates on your mortgage are high or if you are uncomfortable with the uncertainty of a variable rate mortgage, refinancing to a fixed rate mortgage can save you money and provide increased security. In the same vein, combining two mortgages can make managing your money more simple and may even reduce your rates.
In addition to improving the terms on your current mortgage, a refinanced mortgage can help you consolidate other, unsecured debt such as credit card debt. As unsecured debt tends to have substantially higher rates than a secured debt like a mortgage, consolidating your debt can make the process of paying of your consumer debt quickly a much easier process.
Finally, you can refinance your mortgage to cover a larger portion of your home's worth in order to finance your children's education, buy property investments or to finance renovations on your home. This can be a particularly good option if you have built up substantial equity in your home.
Am I Eligible to Refinance?
There are two major factors that affect your ability to refinance: the current worth of your home and your credit score. If your home has declined in value since you bought it, it is highly unlikely that you will be able to refinance. Not to mention, most of the benefits of refinancing come from using your home's increased equity. As with any other loan, poor credit can adversely affect your mortgage's rates and even your ability to refinance. If your credit score has decreased since your original mortgage, you may encounter difficulties.
What's the Next Step?
If you're interested in refinancing your home, you'll want to compare rates between lenders to decide which one will provide the best refinance option for you. You may want to begin by getting refinance information from your current lender, as they are already familiar with the details of your mortgage. Using their quoted rate as your base line, you can then compare rates from other lenders.