Mortgage Refinancing Terms and Considerations

The Factors to Evaluate When Considering Home Refinancing

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When refinancing your mortgage, you will want to understand:

Your own goals
The various loan terms
Which loan variables are important to your situation
The loan marketplace
Other finance options beyond home refinancing

Understand Your Goals

Each person has a unique situation – current interest rate, length of time spent in house, how much more time you intend to stay in your house, credit rating, etc… Different loan features will meet the different needs of each household. The type of refinancing you receive depends on your financial goals.

If you aren’t sure about the best approach for your situation, you should consider talking to an independent financial advisor who may be able to suggest different strategies…. (Click here to learn more about financial advisors.)

Be Familiar with Loan Terms and Variables

The main factors you will need to evaluate when considering home mortgage refinancing are:

Closing costs to refinance home mortgage loans: Closing costs are miscellaneous costs associated with closing a real estate transaction. Attorney fees, appraisals, credit reports, prepaid interest, homeowner's insurance, title insurance, and more may be costs that are included in the closing costs.
Cost of points: Generally, when you pay points, you are paying some money upfront in exchange for lower monthly payments and/or a lower interest rate. Points are expressed as a percentage of the loan amount. For example, "three points" means a charge equal to 3 percent of the loan balance.
Length of time you intend to stay in your house: Different loan features are more advantageous for longer-term mortgages rather than short-term.
Home mortgage duration: The length of time you will take to pay off the loan and interest – usually 15 or 30 years. Usually a shorter mortgage duration means that you will spend less money overall.
Your current home mortgage interest rate: The interest rate that you are currently paying on your mortgage.
Interest rates now available to refinance home mortgage loans: The interest rate at which you might be able to refinance.
Type of home mortgage refinance interest rate: Is it a fixed or adjustable rate
Loan amount: The amount you are borrowing.
Type of lender: Is your lender or prospective lender a prime or subprime lender.
Your credit rating: The better your credit rating, the more favorable loan terms you will be able to secure.

Understand the High Priority Variables

Of the variables listed above, the following are the ones that will help you determine the right loan for your situation:

The length of time you intend to stay in the house,
The interest rate you have on your current home mortgage and the interest rate available to refinance home mortgage loans
The mortgage duration

These can be tricky questions to answer – particularly when retirement planning and your age are considered. Your needs may evolve over the next few years.

The length of time you intend to stay in the house can help you determine whether refinancing a home is a good fit for your situation. For example, if you intend to move in the near future, refinancing (and the upfront closing costs to refinance home mortgage loans) may not be a good strategy for you. On the other hand, if you believe that you will remain in your house for a long time, then refinancing may be a great option and paying points up front could offer great cost savings of a lower interest rate over the long term.

The Loan Marketplace -- Shop Around!

When considering refinancing a home, it is also recommended that you ‘shop around’. Find at least three offers to make sure that you get the best loan terms and aren’t paying too much in closing costs. (Click here to get competitive quotes from multiple loan lenders.)

Another Option – Have You Considered a Reverse Mortgage?

Finally – if you are 62 years old and are planning to live in your home for many more years, then you may want to consider a Reverse Mortgage (Click here to learn more about reverse mortgages.)