Refinancing is very lucrative option for home owners for payments of their mortgage. Usually people opting for refinancing when interest rates falls and get money by applying for new loans to reduce the burden of existing loans .Although such offers seems very attractive but most people fall prey into wrong hands due to lot of hidden charges. Taking financial advice from any competent advisers help you out in this scenario .They know about financing more than you so be wise and consult with them before it’s too late.
As I said people having home mortgage loan mostly go for this option but you must understand the various types of mortgage loan types and their terms of the new loan. Following are some of many mortgage loan types that you may want to consider:
· Option ARM Mortgage
· Adjustable-Rate Mortgage
· FHA Loan
· Reverse Mortgages
Sometime the loan you obtain is a no-cost from any mortgage lender but remember they are in this business for making money. So if lender is not making money then they can increase interest rates high by converting the fees into loan. Albeit there are very few banks those are offering a cost free loan but are very limited in numbers. This is the reason you must compare the lenders and get a GEF (Good Faith Estimate). Although laws don’t forces GEF guarantees but you can ask lender for this as virtually guarantee. Following are the costs that you may pay:
- Loan Discount Points.
- Loan Origination.
- Processing.
- Administration.
- Application.
- Inspection.
- Document Preparation.
- Appraisal.
- Credit Report.
- Title Policy.
- Escrow Fee.
- Reconveyance.
- Beneficiary Demand.
- Notary.
- Loan Tie-in.
- Delivery and Courier.
- E-Mail Doc.
- Tax Service.
- Recording.
Lenders can waive document preparation, Administration, processing, application fees as per your request. You should also understand the YSP (Yield Spread Premium). If lender did not pay YSP to the broker, you might have received a lower interest rate on your loan. Consider it on first hand because by the time you get noticed it, probably you are about to closing the deal.
Drawbacks to Refinances
· Costs: In case you are paying fees to obtain the loan and can be expensive. To figure this out, do some math: add all the fees, difference between your old mortgage payments and you new payments. Then divide that difference into the loan fees, which will equal the number of months you must pay on your new loan to break even.
· Longer amortization Period: You have option to minimize the period of amortization, by paying your loan faster, there is no need of higher payments and to pay more each month.
- Bigger mortgage: By rolling the existing loan into new loan can increase your cost so be wise in this manner as well.
Refinance Benefits
· Lower Monthly Payment: by taking new loan to pay your home mortgage at low interest rate guarantees you a greater monthly cash flow.
· Shortening the Amortization Period: If the new loan interest rates are substantially lower than the existing loan, then you must consider shortening the term of your loan in exchange for a slightly higher mortgage payment.
· Cash in hand: Many obtain cash to invest at a higher rate of return than the new interest rate.
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