When you replace your old mortgage loan with a new one, the interest rate and term may become different. The transformation is actually another type of loan. We refer it as mortgage refinance or remortgage. People apply for home mortgage refinances with various reasons. Some may benefit from it. At the same time, others have to face a grave financial loss. Every coin has two sides; a mortgage refinance has both merits and demerits.
Advantages of Home Mortgage Refinancing
One of the obvious advantages is a more favorable interest rate. A large number of people get a mortgage refinance to make their interest rate lower. With a low interest rate, your monthly payment becomes smaller. It may help you save hundreds of dollars.
If you have difficulties in paying off the loan when it’s due, you can turn to a new loan with a lower interest rate and a longer term. It eases your urgent financial need. Besides, regular payments for a longer term increases your credit score.
Some people want to complete the repayment of the loan as soon as possible. Well, they can get a short-life refinancing as long as they can afford it. Some others worry about the fluctuant housing market, because their loans are adjustable-rate mortgages. To get rid of the anxiety, they can transfer their mortgages into fixed-rate ones whose rate remains the same.
Risks of Home Mortgage Refinancing
Before you decide to get the refinancing, make sure you have the access to it. Lenders have requirements on your home equity and credit rating. You have to meet these standards at the very beginning. If you have appraised your house but fail to notice these requirements, the effort and money you spent are in vain.
When you do a house refinancing, you must check out every clause in your agreement with the lender. Some lenders require a specific mortgage fee. If you ignore it, you will face a penalty. Or the lender will place the fee in your loan, thus resulting in an extra amount of interest.