Tuesday, April 15, 2008

A New Mortgage for Big Savings

Many first-time buyers rush into home ownership without exploring all of their options. They will, for example, accept a mortgage offer without realizing the sizeable monthly obligation. Sooner or later, refinancing may be the best alternative.

Simply put, a mortgage is a long term loan that's repaid over a period of time. Most mortgages are set on a monthly payment basis, while others are "accelerated" to allow the borrower bi-weekly or weekly payment options.

As with all loans there is an interest rate. A lower interest rate means lower payments, so it's best to shop around for the lowest possible rate. Even if you have "locked in" with a plan at a set rate, it may be possible to refinance your mortgage to take advantage of a lower interest rate.

Mortgages are available in fixed and floating terms. In a fixed rate mortgage, the borrower is locked in at a set rate for the duration of the mortgage term. A floating mortgage means that the borrower will pay more or less each month, depending on the current interest rates. Both types of plans have their pros and cons, and the type of mortgage you choose has a lot to do with your present situation. Mortgage refinancing is a good tool to use when homeowners wish to switch from a higher adjustable plan to a lower fixed rate mortgage.

The prevailing market rate keeps changing all the time. So it's quite possible that you have already committed to a mortgage with interest higher than the current rate. In this case, you are wise to consider refinancing your mortgage. In mortgage refinancing, the full payment of your current loan is entered into a new mortgage agreement, but at today's lower rate. If rates drop significantly, for example by two percent points, refinancing makes good sense. Check the prevailing rates of interest and compare them to what you're paying now.

Deciding whether or not to refinance your mortgage depends on other factors as well. Look at the remaining term of your current mortgage. If there were just a few years remaining, it wouldn't make sense to refinance and commit to another extended payment period. There are also various costs associated with mortgage refinancing that you need to consider. Prepayment costs for your current mortgage, closing costs of the new mortgage, and other borrowing fees can come into play. Some lenders will also charge a fee for closing a mortgage early, so be careful to check the fine print.

Refinancing your mortgage can also bring extra cash when you need it. If you have built a significant amount of home equity, you can use mortgage refinancing to obtain a home equity loan. In this case, you can use your home equity to generate cash. The proceeds from mortgage refinance can be used for various purposes, like debt consolidation, home improvements, or as a college fund for your children. Many people wisely use mortgage refinancing to consolidate their debts. Choosing one monthly payment over many bills is not only easier, but it saves you a lot of money by avoiding higher interest payments from credit cards and private lenders. Your pocketbook, and your credit rating, will look a lot healthier.

When high interest rates and unpaid debt strain your budget, mortgage refinancing can be an easy solution. You'll pay less interest and save money.

Article Source: http://keywordbeast.com

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