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Mortgage Refinance

Why should you consider a mortgage refinance? A mortgage refinance can allow a homeowner to save money on mortgage interest expenses.

-- Credit Tip by FindLocalBanks.com
Federal law requires that all creditors must state the cost of their credit in terms of an Annual Percentage Rate (APR). This rate takes into account how the loan is repaid on a yearly basis, and allows you to accurately compare the cost of credit among lenders. For example: You borrow $1000 for one year and pay a finance charge of $100. If you can keep the entire $1000 for the whole year and then repay $1100 at yearís end, you are paying an APR of 10 percent. But if you repay the $1000 and finance charge (a total of $1100) in twelve equal monthly installments, you donít really get to use $1000 for the whole year. In fact, you get to use less and less of that $1000 each month. In this case, the $100 finance charge amounts to an APR of 18 percent.

Here are some common reasons homeowners get a mortgage refinance:

  • Mortgage refinance to lower monthly payment
    A mortgage refinance can result in a lower interest rate, which in turn will lower monthly loan payments. This can allow homeowners to use the monthly savings for other purposes.
  • Mortgage refinance to get cash
    With this type of mortgage refinance, the borrower can get a lower rate and get cash out of the property to use for any purpose. In order for this type of mortgage refinance to be a viable option, the homeowner must have a fair amount of equity in the property.
  • Mortgage refinance to shorten loan term
    Many people use a mortgage refinance to reduce the term of their home loan. While this strategy in many cases increases the monthly loan payment, the loan is paid off much faster, which can save tens of thousands of dollars in interest costs over the life of the loan.

-- Credit Tip by FindLocalBanks.com
The finance charge is the total dollar amount you pay to use credit. It includes interest costs and other costs, such as service charges and some credit-related insurance premiums. For example: Suppose you borrow $1000 for one year, and the interest is $100. If there is a service charge of $10, the finance charge will be $110.

If you are considering a mortgage refinance to lower your monthly payment, you need to make sure that you will be staying in the property long enough to recoup the costs related to the mortgage refinance (i.e. application fee, processing fee, origination fee), property appraisal and title-related fees.

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