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Refinance (or Refinancing)

Definition

When an investor or a home owner refinances, they are essentially replacing their existing loan (or debt obligation) with a new capital, often from a different lender, that bears new and usually more favorable terms for the borrower.

Using the term Refinance (or Refinancing) :

Although a refinancing is often favorable, there are certain areas to watch out for. It is generally believed by most mortgage industry practitioners that one should not refinance unless they are saving at least 1% off of their current interest rates. However, there may be circumstances, such a refinancing to avoid a large rate increase on an adjustable-rate mortgage, where it still makes sense to refinance even if you are saving less than 1%. You also should plan to be in your home (or in that investment) for at least another three years. Otherwise, the costs that accompany refinancing will likely not make it worth the expense.

Pay Special Attention To :

Some loans / mortgages have pre-payment penalties. These types of loans are best to avoid when choosing a loan, but if you happen to have such a clause on your current loan, make sure you factor in this cost along with other expenses for refinancing. Some of the other expenses to be aware of are closing costs, transaction fees and new taxes in some instances that may make the cost of refinancing prohibitive for the investor / home owner. You should ensure that you have thorough calculated all associated costs (with the help of a professional ideally) before moving forward with any decision to refinance. Also, get the help of an unbiased professional to help you understand all terms of your new loan before moving forward.

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mortgage