Refinance :: Home Equity Mortgage Refinance Loan :: Second Mortgage Loan Refinance

Mortgage Lending Guide: Mortgage Refinance

Refinancing your home

Refinancing your home is the process of obtaining a new loan to pay off the old one. Often, a refinance is used to pay off the old mortgage along with a second or even a third mortgage.

There are two kinds of refinance:

• Cash out
• No cash out

That means that in some cases all you take is enough money to pay off the existing debt and the closing costs. In others, you put some cash in your pocket at the same time. Except in extreme cases, such as a Foreclosure Loan, you should not have to use any out-of-pocket money for a refinance.

You can approach your current mortgage lender and ask them for a better loan. In fact, some lenders send you regular solicitations offering a refinance. You also have the option of selecting a completely different lender - and the experienced loan advisor you'll find at Mouse House Mortgage can help you choose which lender offers the best terms for your unique situation.

You'll quickly learn that each of the major banks has its own policies and programs. A good loan officer knows which to turn to for your particular situation, and isn't afraid to check with several before making a recommendation to you.

Mouse House Mortgage Loan Advisors have access to programs from 113 different lending institutions. They'll easily find the right one for you!

When should you refinance?

Two of the most compelling reasons to refinance are to "get rid of" a high interest loan and to "get rid of" the Private Mortgage Insurance. In both cases, the goal is to reduce your monthly payment and the number of dollars you're spending that give you no value in return.

If your original loan was for more than 80% of the purchase price, you are paying PrivateMortgage Insurance. Some lenders will allow you to submit a fee appraisal showing that your home has appreciated and your equity is now over 20%, while some will insist that you pay down the loan until it reaches 80% of the original amount. In any case, they all require that you pay this fee for a minimum length of time.

If you're in an area with fast appreciation or if you got a real bargain when you purchased, a refinance can be the simplest way to eliminate the mortgage insurance and perhaps get a lower rate based on your reduced loan to value ratio.

If you started with an "interest only" loan and it will now roll into a loan with a higher interest rate than is currently available, you should refinance. You should also refinance if you started with an adjustable rate mortgage that has now accelerated to a high rate.

Your goal should always be to spend the most you can on principal and the least you can on interest and fees.

To determine the best course of action, first consult with a lender. Find out the rate and terms available to you, and the cost of closing the new loan. Then compare the new rate to the one you are currently paying.

A good rule of thumb is to take the new payment and compare it to the old payment, or payments. Divide the cost of the new loan by the amount you'll save each month to see how many months it will take before you're "making money" from the switch.

For instance:

Your current payments are $1,100 per month

Your new payment will be $850 per month

The loan will cost $4,800

Divide $4,800 by the difference between the two payments ($250). You'll see that it will take 19.2 months to pay for the new loan.

If you plan to be in your home longer than 20 months, the refinance is a good idea. However, if you plan to sell within the next year, it isn't.

Note* Even though those loan costs are covered by your new loan, and your new payment includes them, you still paid the fees. It didn't cost you money up front, but it did add to your debt.

Other reasons to refinance:

You may decide to take a "cash out" refinance for purposes such as:

• Paying off credit card debt
• Paying off a car loan
• Purchasing more land or an investment property
• Remodeling your home
• Sending your child to college

Your prime concern when refinancing should be to get value for that money, because it does increase your commitment and your risk of loss. A home is the single largest investment that many people make. You don't want to take a chance on losing it if you can't make the payments.

There are many who would advise you never to roll unsecured debt into a secured debt against your house. This is purely a judgment call on your part. If you're paying a high interest rate on credit card debt and know you'll be able to make the new payments easily, it might be fine. You get the added benefit of moving interest on a consumer debt into the "deductible" column on your income tax return.

However - if you're putting yourself in a dangerous position, then you shouldn't do it.

Your Mouse House Mortgage Loan Advisor will go over all the benefits and drawbacks with you and help you make an informed decision.