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Mortgage Refinancing Tips

Mortgage refinancing requires establishing a new home loan to pay off original mortgage notes. Borrowers can refinance their home to obtain a reduced interest rate, change the type of loan, or receive cash from accrued equity to pay off debts, make home improvements, take a vacation or invest in profitable ventures.

When entering into mortgage refinancing borrowers must undergo the same type of credit approval process encountered when taking out the original loan. It is a good idea to review current loan documents to determine the current rate of interest. Financial experts recommend homeowners only refinance mortgages when they can reduce interest rates by 2-percent or more.

Homeowners should also review mortgage notes to determine if a prepayment clause is included. This information is usually provided in the Truth in Lending disclosure statement. Most home mortgage loans include a prepayment penalty. Borrowers incur these costs when paying loans off early.

In addition to prepayment penalties, borrowers have to pay closing costs when refinancing mortgages. Closing costs can range between 3- and 6-percent of the outstanding principal and interest. Common settlement fees include loan application, loan origination, home inspection, appraisals, surveys, title search, title insurance, and legal fees.

Some mortgage lenders offer no-cost loans, allowing borrowers to roll closing costs into the loan. Homeowners must realize they will pay interest on the closing costs for the duration of the loan. In most cases, no cost home mortgage loans can be more costly than paying settlement costs upfront.

Chances are your home is your most valuable asset. It is imperative to understand the process of mortgage refinancing and take time to shop around for the best loan. Becoming informed and comparison shopping can save thousands of dollars over the long run. Unless you are a mortgage expert, take time to brush up on the topic so you can make the best financial decision.

The Internet provides an abundance of mortgage refinance information. It is best to utilize government websites such as The Federal Reserve Board, Federal Housing Authority, and U.S. Department of Housing and Urban Development (HUD) to obtain accurate information.

The Federal Reserve Board offers home loan refinancing tips, resources and downloadable worksheets, as well as links to lenders and federal agencies. Start by downloading the mortgage refinancing eligibility worksheets to determine if you meet refinance criteria. Obtain the facts about mortgage refinance at FederalReserve.gov.

Refinancing mortgages extends the terms of the loan. For example, if you have 18 years remaining on a 30-year mortgage note, you will extend mortgage payments for an additional 12 years by refinancing into a new 30-year loan.

It is important to determine the actual costs of refinancing. Prepayment penalties, closing costs and extension of terms can add thousands to the actual cost of your home. Mortgage refinancing should not be decided on a whim. If you enter into a new agreement without understanding potential ramifications, you could place your property at risk for foreclosure.

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