What is mortgage refinancing and how does it work?

Mortgage refinancing is an effort to obtain a new loan with an intention of reducing your monthly payment, taking cash-outs of your home to make a larger purchase, lowering the interest rates or even changing your mortgage company. Most individuals do refinance after they have equity on a home- the difference between the amount they owe to the mortgage company and the real value of their home. By refinancing your mortgage, you will be paying off your old loan by getting a new one.
Since you would be getting a new loan that will contain new terms, the lender will need key information to ascertain whether you really qualify for the new loan.

Information that a lender requires for mortgage refinance

Generally when you apply for a mortgage refinance, the lender will ask for the following information:

• Your payment history and credit score
• Your employment history and your current income
• Your assets like savings, stock and retirement accounts
• An appraisal to determine your home’s current value.

Reasons why you would like to refinance your mortgage

Generally, most people refinance their mortgages to benefit from lower rates. Mortgage rates keep falling or even rising depending on the economic conditions. Even when you have little equity or you are under water on the mortgage, you can also be able to benefit from any available special refinance program offered and therefore lower the mortgage rate in a significant way.

Furthermore, some people do refinance their mortgage to allow a stable monthly income. You may choose to refinance from adjustable rate mortgage-ARM- to a fixed rate mortgage. By doing this, you can achieve a predictable and a more stable monthly income.

Another reason why you can opt for a mortgage refinancing is in case your ARM is more or less to adjust. If you initially received a 7/1 ARM 6 years ago, you may refinance into a different ARM for you to reset the loan.

You can also withdraw some equity from your property in form of cash-back refinance. Most people typically do this after they have built up a significant equity in their property or even paid it off altogether. There are people who consider using the money they get from the mortgage refinance in purchasing big ticket items like another house or a car down payment. In addition, others may use the money to pay down a credit card debt or any other high debt they may be carrying. Divorce is a primary factor that can influence an individual’s need of cash out refinance.

If you have two mortgages or a home equity line and a mortgage, you can use mortgage refinance to consolidate the two mortgages. By doing this, you will be refinancing the two mortgages for simplicity purposes.

Cash in refinancing can help you in refinancing a lower rate, short loan term or even eliminate mortgage insurance. You can do this by putting down any additional money during the refinance. By putting more money down during the refinance, you will pay down the overall loan balance and also improve on your home equity and the loan-to-value ratio.

Typically, if you are able to lower the monthly mortgage payments and also offset the refinancing costs in a more reasonable time frame, it’s better if you consider a refinancing.

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