Mortgage Refinance

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A mortgage refinance refers to the replacing of an existing debt with another debt obligation that has different terms. Just like anything else in the real estate industry, there are many advantages and disadvantages to a mortgage refinance, some of which are outlined below.

Advantages to mortgage refinancing
A mortgage refinance may be applied for in order to reduce interest costs for the property owner, to extend the period in which the mortgage should be paid, to channel funds into the repayment of other debts, to reduce a property owner's payment obligations by taking on a longer-term loan, for the reduction or alteration of risk by refinancing a fixed-rate loan, or to raise funds for investment purposes.

In all of the above examples, refinancing can therefore change the monthly payments that are due on a loan either by changing the interest rate of the loan, or by changing the terms of the loan with regard to maturity. Some lending conditions may even give the property owner an option to reduce the overall cost of borrowing. In most cases, mortgage refinance is used in order to improve the cash flow of the property owner by making his or her monthly bills or payments lower.

One other function of refinancing is to reduce the risk inherent in an existing loan. Interest rates on adjustable-rate loans and mortgages tend to change based on the movements of various factors used in their calculation. With a mortgage refinance, an adjustable-rate mortgage can be converted into a fixed-rate mortgage, with the risk of interest rates increasing reduced considerably. This will ensure that the interest rate remains constant for the duration of the term. The downside to this is that lenders who grant fixed rate loans tend to charge much higher rates for these services.

In terms of personal finances, a mortgage refinance can also be used in order to help pay off a high-interest obligation such as credit card debt, by exchanging it for a lower-interest obligation such as a fixed-rate home mortgage. This allows a lender to reduce his or her costs by more closely mirroring the borrowing cost with the general good credit and security of collateral that is available from the borrower. In addition, there may be certain tax advantages that borrowers can benefit from with mortgage refinance, particularly if there is no Alternative Minimum Tax paid.

In the No-Closing Cost type of mortgage refinance, borrowers typically pay upfront fees in order to avail of the new mortgage loan. In situations wherein the current market rate is lower than the existing rate by 1.5% or more, it would be a good idea to apply for mortgage refinance since there is very little cost involved.

In the Cash-Out form of mortgage refinance, the borrower can lower his or her monthly payment or have a shorter mortgage period. This type of refinancing is often used for home improvement purposes, or credit card or other debt consolidation. In addition, if the borrower qualifies with his or her current home equity, the loan can even be refinanced at a larger than the current mortgage, and the borrower gets to keep the difference.

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