Benefits Of Refinancing A Home

Home refinancing is when a home owner takes out a second mortgage in order to pay off their initial mortgage. A fairly popular reason home owners choose to refinance their existing mortgage is because of lower monthly mortgage payments. Homeowners who are in the process of paying off their existing home mortgage, have a good credit score and have kept the property in good condition, are typically eligible to refinance their home.

If you fall into the large pool of homeowners who have less than stellar credit, there’s no need to panic, you can still refinance your home. However, the home refinancing process is far more tedious for home owners with bad credit because the home refinancing programs tailored to those with bad credit aren’t heavily advertised.

Lowering Monthly Mortgage Repayments

The most popular reason home owners choose to refinance their homes is to lower their monthly mortgage repayments. Wouldn’t it ease your wallet if you could lower your monthly mortgage repayment by $500? Home refinancing makes it possible to lower your monthly mortgage payments by such a substantial amount. If you strategically time when you will refinance your home, you can drop up to 4% of your current interest rate. Do note that costs will be incurred during the home refinancing process. Closing costs are necessary and you will often be charged a prepayment penalty fee by your current loan holder for paying off your mortgage before its full term.

Generally, prepayment penalties are for no more than six months of your current monthly mortgage repayment amount. For example, if your mortgage is $1,500 your prepayment penalty would amount to $9,000. However, prepayment penalties, if applicable, vary according to your mortgage holder.

Making the Swap: ARM to FRM

Ever since the financial crisis created a wounded real estate market, home owners with adjustable rate mortgages started to feel the burn. Unstable mortgage rates mean that a home owner doesn’t know what their payment will be 60 days from now. Home owners with adjustable rate mortgages choose to put their repayments at ease with a more stable option, a fixed refinance rate mortgage. Home owners who decide to make the mortgage swap lower their monthly mortgage repayment rates substantially.

Switching to a Shorter Mortgage

The longer a mortgage term is the more money that is drawn out of a home owner’s pocket in order to pay steep interest payments. Often, a home owner will end up paying more than twice of what their home is worth in interest payments alone during a 30 year or over fixed rate mortgage.

Making the switch from a 30 year term to a 10 or 15 year term can literally save a home owner over $100,000. However, this option is only ideal for home owners that don’t mind paying a little extra towards their principal through every mortgage repayment. Unlike the two benefits of home refinancing mentioned above, this benefit may have a high price monthly price tag if the home owner hasn’t already paid off a substantial part of their initial mortgage.

Jazmin Espinal is a professional freelance writer and the owner of Capital Web Writing, a web content solution for businesses and webmasters. To contact Jazmin or to see samples of her writing, please visit CapitalWebWriting.com.