The Home Mortgage Refinancing Components
By Charles Hopkins
Published 10/26/2007 | Loans
If you're thinking of refinancing your mortgage at any time in the future, you can do no better at the start than to do some research and see if you will really benefit from it. The more you know about mortgage refinancing, the better you will be at determining what you need and finding the right product to suit your circumstances and your needs. A little education could help you save thousands of dollars or shorten the length of time needed to pay off your loan. It could also help you avoid the predatory lenders out there who are lying in wait, eager to separate the unwary from their money.
One of the basics is to understand what comprises and shapes mortgage refinances. There are three main components to refinancing:
When you refinance a mortgage, your lender will assess you some fees in order to set up the deal, similar to the way fees were levied on your original mortgage. These are an important consideration as they will help determine if refinancing is the right option for you or not. The general rule is that the money saved from refinancing the loan over its term should be greater than the costs incurred during the refinancing itself. It makes no sense to refinance if such an act would make you lose money. Some of the fees that might be imposed upon you include, but are not limited to:
1. Application fee covers the processing of the loan request and obtaining and examining your credit report.
2. Appraisal fee pays for a defensible estimate of the value of the property in question.
3. Loan origination fee this is charged for the work the lender will do to prepare and evaluate the mortgage loan.
4. Points are used to increase the lender's yield beyond the stated interest rate. One point is equivalent to one percent of the loan, thus, one point of a 50,000 loan is 500.
5. Lender's attorney's review fees lenders can charge you for legal services required during the closing of the deal.
6. Title search and insurance charged for confirming the ownership of the property on public record and insures the policy holder against losses stemming from discrepancies in the title to the property.
7. Miscellany other fees may be levied such as surveyor's fees, various types of insurance depending on the loan, inspection fees, and so on.
The interest rate is a key component of the repayment, and lowering it can save a borrower a lot of money over the life of the loan. This is a common reason why homeowners refinance their mortgages. You will only recoup the costs you incurred refinancing by staying in the home until past the 'break-even' point, the point past which the savings in interest make refinancing a worthy option.
The mortgage term is simply the length or duration of the loan repayment. For example, a 30-year mortgage term means that the borrower has 30 years to pay back the money owed. Longer-term loans usually have smaller monthly repayment amounts, while shorter-term loans have larger repayments.