Home Loan Refinancing

Buying a home is a dream that many people cherish, and sometimes realize. Nowadays, there are various banks, lending firms and other financial organizations that offer a variety of home loans, thereby providing financial assistance to borrowers for buying a home and realizing their dreams.

There are two different types of home loans depending on the mode of interest rate. These include fixed-rate mortgage loans and adjustable-rate mortgage loans.

In case of fixed-rate mortgage loans, interest rates are fixed for the entire period of loan, which means that the borrower is required to pay a similar amount every amount towards mortgage payment.

In case of adjustable-rate mortgage loans, interest rates are low during the initial 2-3 years, but areadjusted periodically depending on the market index. In most cases, the adjustments cause an increase in monthly mortgage payments. Many borrowers default with their monthly payments primarily because they are unable to adjust to the increase in monthly mortgage payments. Defaulting with loan repayments causes a significant damage to the credit history of an individual. In most cases, these individuals end up as bad credit customers. Borrowers defaulting with their mortgage payments or having bad credit often face the risk of home foreclosure. Home loan refinancing is a useful solution for such borrowers.

Apart from paying off existing mortgage loan, people also use refinancing for different reasons. Home loan refinancing is useful in generating cash required for home renovations, for switching between fixed and variable interest rates, and also for obtaining a loan at a lower interest rate. Home loan refinancing is more profitable when the home equity value is high. One can obtain refinanced home loan at a very low rate using high home equity as collateral.

However, one should be really careful while opting for a home loan refinancing. Not every customer has a requirement for home loan refinancing. But, many customers opt for one under the influence of fraudulent loan brokers. It is important to consult an expert from an independent consultancy before considering for a home loan refinancing. Also, the consumer has to pay certain charges towards closing costs and prepayment penalties while going for refinancing, and this cost should be offset by the perceived benefits of refinancing. The entire exercise is useless if the saving is equal to the costs paid.