Refinancing
Refinancing means getting a new mortgage and using some or all of the proceeds
to pay off the old mortgage. Homeowners may refinance for several reasons:
- To take advantage of lower interest rates and lower your monthly
payment.
If interest rates have gone down since you got your original mortgage, you
could save money over the life of your loan, while reducing your monthly mortgage
payment.
- To switch mortgage types.
You may want to switch from a variable
to a fixed interest
rate, or vice versa. If you have a balloon/reset
mortgage, you must either pay the mortgage in full at the end of the 5-
or 7- year term, contact your Servicer (the organization to which you send
your monthly mortgage payments) to start procedures to reset your mortgage
to a fixed-rate of interest, or refinance with a new mortgage.
- To shorten mortgage terms.
You may want to refinance to shorten the term of your loan. This would allow
you to pay less interest over the life of the loan because the money is borrowed
for a shorter period of time, and more quickly builds up equity in your home
- To get "cash out."
Some lenders will let you borrow more money than the balance of your original
mortgage, based on the equity you have in your home. A portion of the money
left after the original mortgage is paid off goes to you to use for things
like paying for a child's education or home remodeling.
However, remember that you'll have a new mortgage, at a higher amount, that
will eventually need to be paid off.
The Refinancing Process
Refinancing is very similar to getting the first mortgage on your current home.
You should follow the same steps as when you obtained your original mortgage.
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