Home Loan Refinancing
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Home loan refinancing is usually caused by a decline in interest rates and brings many homeowners back to the mortgage market for a new lower rate which will save them money. Some homeowners have done this two or three times as rates continue to decline. In the past, this process has accounted for over 50% of all originations. The benefits are different for each borrower. Home loans refinancing involves the amount of rate reduction, the new closing costs and points, the effects of tax laws on borrowers, and possible new lender requirements.
Refinancing has no real standards and costs can vary substantially between lenders. The best place to start the search for home loans refinancing is with the lender that holds the existing mortgage. Most lenders would rather have the borrower refinance with them, than lose out on the opportunity to gain money through the early, higher interest rate payments. The market is very competitive and lenders will compete through the use of interest rates for the borrower's business. Most borrowers have access to multiple refinance sources and can usually pick and choose their home loan refinancing lender.
It is a general guideline that a rate reduction of 2 percentage points or more justifies the refinance process. However, rate reduction alone will not save the borrower money. A practical approach is to calculate how many months it will take to recover from the fees and costs. No specific regulations apply to the charges that may be assessed in a home loan refinancing transaction. It is important to be aware of all closing cost fees and points before deciding on a lender. A fact to consider is that tax laws treat the refinance process differently than a new loan in terms of deductibility of a discount. A discount point paid may only be deducted throughout the term, unlike discount points paid with a new home mortgage.
The refinance process is a negotiable transaction. It requires some tact and knowledge to get a good deal so homeowners should take the time to read and understand all terms. "I will instruct thee and teach thee in the way which thou shalt go: I will guide thee with mine eye" (Psalm 32:8). If a lender agrees to an interest rate concession, it is possible that one bargaining chip would be a change from a fixed rate to an ARM home loans refinancing payment plan. The lender may only offer the lower rate on their terms. One major problem that homeowners have is that the market value of the house has declined to an amount something less than the balance due. In general, the new loan cannot exceed 95% of the current market value of the property. FHA and VA loan agencies encourage their borrowers to seek home loan refinancing if lower interest rates can be achieved.
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