Refinancing Home Loans

By U Learn It | February 16, 2010

Many money borrowers opt for refinancing home loan when interest rates decrease. This is what most people with floating or variable interest rates do, because savings are considerable when it comes to the big picture of debt repayment. Even so, the problem of refinancing home loan is not that simple or easy to do, and it should not be treated too lightly. Some people even choose to refinance twice or even three times over just a few years. How much can one save?

The truth is that by refinancing home loan you gain on the one hand but lose on the other. You may in fact reduce the monthly payment, but you add up more principal to the loan or you extend its life. The lender allows you to pay less but in fact changes the conditions of the loan, increasing the repayment interval. Refinancing can be done for both variable and fixed home loans but the mortgage types differ greatly. Plus, you need to fully understand the terms of the loan before signing any new agreement.

Nobody is doing you any favor with a home loan, because lenders actually sell financial services. You will therefore be charged a fee for refinancing home loan. Upfront costs normally define the loan, and you should be wary in case no fees are charged. Using a zero-payment solution may in fact hide interest rates higher than the market offer or fees rolled into the loan. There are very few institutions that perform refinancing home loan for free. Better ask for a Good Faith Estimate before you proceed with the refinancing.

Loan origination, appraisal, administration, processing, re-conveyance and title policy represent the main services that are charged for refinancing home loan. You can negotiate some of these fees directly with the lender, as it is the case with processing, application or administration.

Fees make refinancing home loans very little advantageous. Add up all costs and get a financial analysis between the older mortgage and the refinance solution. Do you feel comfortable paying $4,000 in fees? Are you really making savings? Only then you’ll know which solution is best for your case!