How Much Can I Save By Refinancing My Mortgage

Mortgage is a loan used for buying a property (land, house or any type of real estate). Mortgage refinancing is a process used to by owners to reduce or eliminate its outstanding balance and also get more cash back in the process. Refinancing a mortgage at lower interest rates can help the owner save significant amounts of money.

What is a Mortgage Refinancing?

Mortgage Refinancing refers to borrowing from an existing home loan to pay the outstanding balance of a different property to a different lender. The process of refinancing home loan helps the owner of the old property (and not the new one) to save significant amount of money. How Does Refinancing Mortgage Process? The basic concept of a mortgage refinancing is similar to the old one. Owners are allowed to take out another loan and pay the outstanding amount of the existing one to the new one. This way, the borrower’s name remains the same. The main difference between refinancing mortgage and buying another property is that the owner of the old property is actually giving up the right to a second house. The old mortgage has to be repaid to the lender (mortgagee) for the new property.

Benefits of a Refinancing

When considering the benefits of refinancing, there are a few very compelling factors which make refinancing a mortgage a must. Lowers Your Monthly Mortgage Payment. Lowering the amount you pay for a mortgage monthly can have a dramatic effect on your savings. A borrower who has a 15% monthly mortgage payment will save approximately 2.2% of his monthly income every month. At the same time, refinancing with a 5% lower interest rate could allow you to save up to 10% of your monthly income. Minimizes Risk of Default. When someone is refinance loan, his probability of default is reduced drastically. A bank or other financial institution takes a chance when they lend money to borrowers at a rate that is above the rates they can earn from giving the money to other customers.

Reasons for Refinancing

It has been observed that owners often find it difficult to make large financial investments in their homes. If owners start making these investments, then the prices of their properties will start going down, thereby adversely impacting their net worth. To reduce the costs of making these investments, owners should use refinancing to their advantage. What is Refinancing? Refinancing is a form of obtaining a new loan from a lender. The new loan is easier to repay, hence it is preferable for the owner to avail a new loan rather than taking the existing one.

Refinancing Options

Saving money on mortgage interest is a very common tactic among property owners. Many property owners take the conventional route, which is to refinance with another lender and the amount of the interest you save will depend on your existing lender’s qualifying interest rate. To reduce interest rate, you need to prove to your existing lender that you are able to repay your mortgage at lower interest rates. Refinancing With A Regional Bank: Many people do not know that in addition to refinancing with a conventional bank, property owners can also refinance their mortgage to a regional bank. A regional bank is a bank that is regulated by a state or local authority.

Refinancing Tips and Pitfalls

Buying a property is the biggest investment decision any person can make. Making mistakes in the first purchase of property can be very costly. It is very important for the people interested in investing in a house to work with a professional property manager. They can make the home buying process more convenient and time-efficient. Reasons to Refinance With that said, below are the reasons why you should consider refinancing your mortgage loan. Most of the US mortgages have their interest rates locked in the range of 5% to 10%. In some cases, the interest rates can go even lower, as the lenders would consider it better to lose less money than to allow the interest rates to go even higher.

Conclusion

At the end of the day, it depends on you to know what makes sense for you and your home. If you are planning to sell your property before buying another property to rent, it will not be prudent to refinance your mortgage at this stage. If you are looking to remodel your house before selling it, refinancing the mortgage will not give you much cash. Overall, your goal should be to save as much as you can in your monthly expenses. This will give you extra cash for any expenses required for renovation. Additionally, it will give you the capital to invest in any improvement to your house.