You refinance your existing mortgage loan when you avail another loan against the same security to pay off the first one. You also get some extra cash on refinancing that can be used to pay off your other debts. The benefits of refinancing are many. The ongoing credit crunch has forced homeowners to go into a state of frenzy. Due to subprime lending, borrowers who didn’t qualify for a mortgage loan were given one. As such, they started defaulting in their payments. Eventually, more and more homeowners started facing foreclosure. The rate of foreclosure had increased at an alarming rate. This made homeowners take refuge in refinancing to prevent their homes from getting foreclosed.

How does refinancing help you?

The most suitable time to apply for refinance is when rates are low. If you are currently paying high interest rates, by refinancing you can opt for lower interest rates. It will enable you to pay less each month.

There is another advantage of refinancing your existing mortgage loan. You can shorten the duration of your mortgage loan by refinancing. By doing so, you save a lot of money in interest. And if you shorten the loan term but continue paying the same amount that you have been paying before, you will be making payment not only for the interest but also for the principal amount. This can build equity in your property in due course.

Having an adjustable-rate mortgage or ARM can be an icing on the cake provided the interest rates are low. However, ARM can take you for a ride if the interest rates are high. So, when you refinance, you can opt for FRM or fixed-rate mortgage instead of ARM. You can request your lender to make the necessary changes. By opting for FRM, you know the amount you are required to shell out every month. And you don’t have to worry about the changing market conditions.

When is refinancing not a good option?

If you have a ruined credit report, refinancing may not allow you to enjoy favorable terms. However, your lender may still agree to refinance your existing mortgage loan. The interest rate may however be astronomical.

If the value of your property has decreased, refinancing isn’t the right option.

If the mortgage loan term for your first mortgage is coming to end, refinancing is not a good idea.

To assess the right time to opt for mortgage refinance, it is best to talk to a mortgage broker, who can assist you in taking the right decision.

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