Mortgage Refinance Rates – What is Refinancing?
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I have already written about what an interest rate is and what a mortgage is. Now it is time to write about what exactly refinancing is so you can find out more about mortgage refinance rates. There are many definitions out there that explain what refinancing is and here are some of them that I found when I searched the term on the internet:
It is when you take out a new loan so that you can pay off your loans that you already have. It is also known as consolidation.
It is when you switch from one lender to another lender.
It is the process of getting a new mortgage to replace an existing mortgage.
I like this one the best: It is the process of getting a new mortgage, usually at a lower interest rate, to replace the existing mortgage. This is more in line with mortgage refinance rates.
This is also good: A way of getting a better interest rate, and therefore lower monthly repayments. A second loan is taken out to pay off the first, higher-rate loan.
And there are so many more definitions. But as you can see, they all mean the same or similar thing. When they refer to consolidation above, I think that is more to do with having many loans and then getting one loan to pay them all off so that you only have to pay the one big loan off.
Pretty much, refinancing allows you to change your home loan to suit the new position you find yourself in.
So, the reasons on why you need to refinance are all yours but now you have a better understanding of what refinancing actually is. Maybe this will mean that you know if you need to do it or not and then you can do some research on mortgage refinance rates that are out there.
Mortgage Refinance Rates – Why Should You Refinance?
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So it is like this – every where you go and every one you talk to seems to be throwing the refinance word around. And now you are thinking ‘everyone else is doing it, should I be doing it too?’ Well, maybe. But you should consider a few things first and always, always do your research too.
One of the main reasons to refinance is because interest rates are increasing and you are not able to handle the payments for much longer. This is where you have to look around for the best mortgage refinance rates. They have to better than the interest rate you are currently paying.
You need to write down all the fees that you would have to pay if you exited from your current mortgage earlier than the agreed term. There are always fees associated with this, especially within the first five years of the loan. They are not really fees so much as penalties. If these are so much that it is better to stick with what you’ve got, and you won’t benefit within 2 years, then so be it. But you need to sit down and make those calculations and this is where the mortgage refinance rates play a big part.
You should also check your credit rating or credit report around this time. If you have been making your payments regularly and on time, then you should be ok, but if you have not, then it is a different story. The same lender may be willing to refinance with you because they know your history, but others may not.
So all in all, you should refinance if it is of benefit to you within the first few years and the mortgage refinance rates and calculations with that should help with you find out. Your credit report at the time you want to refinance will also determine if you are able to refinance too.
Mortgage Refinance Rates – What is an Interest Rate?
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I briefly covered some types of interest rates in my last post but did not actually explain or define what an interest rate is. To properly understand mortgage refinance rates, you need to know about what an interest rate is. So here is a simple definition: An interest rate is a rate that you pay for the use of money. It is often expressed as an annual percentage of the amount of money you borrow/use and is very important when it comes to refinancing. You calculate an interest rate by dividing the amount of interest by the amount you borrow (this is called the principal).
Here is an example: I borrow $150 from a bank and they charge me $35 for the use of that money. So what is the interest rate?
$35/$150 = 0.2333 and to express that as a percentage we multiply by 100. So the interest rate is 23.3%
The unstable thing with interest rates is that they change all the time. Not randomly but in response to other factors in the economy. They can also be changed to affect other parts of the economy also. But the discussion and explanation of that requires me to write a book. So we will not get into that because we are looking more at mortgages.
Business that lend money have a right, a legal right, to charge a borrower this interest rate. That is how they make their money. The interest rate of a loan is most often expressed as a yearly figure, even if the terms of the loan call for a different repayment schedule, that means even though the interest rate is an annual rate you may still pay monthly or fortnightly and not yearly.
Now, I did talk about variable and fixed interest rates before in another article.
A fixed interest rate (people are not really concerned with mortgage refinance rates when they have a fixed rate) means:
If you take out a mortgage for 20 years with an interest rate of 8% per year and this is fixed for 20 years (that would be rare, you only usually get fixed interest rates for 1-5 years) it means that you will pay 8% interest on your mortgage every year for 20 years.
Now a variable rate means:
You take out a mortgage for 20 years, with an interest rate of 8% per year because that is the interest in the economy at the time. Next year it may be 9%, the year after it might go down to 7%. So your payments change every time the interest rate changes.
Variable interest rate changes and especially interest rate increases are the main reason people look into mortgage refinance rates. They want a better (lower) interest rate than the one they have because their payments are increasing and they are finding it difficult to pay their lender.
Mortgage Refinance Rates – What is a Mortgage?
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On the most basic of basic levels, a mortgage is a type of loan. Now, this loan is guaranteed by the property you are buying (and getting the loan for). This means that the lender is able to sell your house if you are unable to pay the loan (and why you want to refinance - to avoid this). This is what makes a mortgage different from other types of loans – you are borrowing against a property. You must understand this before you can start concerning yourself with mortgage refinance rates.
You can get a mortgage from many different places and these could be from one of the following:
- A bank – this is the most obvious one
- A building society – most people forget this, they can be quite good.
- Mortgage houses/providers – they specialize in the mortgage type of loan.
- A credit union – these are becoming more popular
- Life insurance companies – not as common as the above
and many more.
You really should shop around to get the best mortgage or mortgage refinance rates for you. There are many mortgage providers on the internet also that can help make your decision. You may not get the actual mortgage from the place but you will find information. Not every site has all the information you need so you need to get all the mortgage information you require from a few sites. It shows that the internet is very important when it comes to research.
In addition to many types of loans, there are also many types of mortgages available. They are all basically the same in terms of property being the main guarantee for the loan, but are different in terms of payment and arrangement.
You can a variable interest rate or a fixed interest rate. This is one of the main points when talking about mortgage refinance rates. You can also split your loan so part of it is fixed and part of it is variable. There is also a type of mortgage called home equity mortgage. This type means that you are allowed to re-borrow money that you have already paid off the loan.
Welcome to Mortgage Refinance Rates
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Trying to wade through all the information out there on mortgage refinance rates? My aim is to provide you with information to help you out and to give you the best resource for mortgage refinance rates. If you are looking for current mortgage refinance rates I bet your life is pretty difficult already. I hope to make things a little easier for you.
Thank you for visiting the site and be sure to come back soon, mortgage refinance rates information will be posted soon. You will learn about mortgages, interest rates, refinancing and why on earth should you refinance? These are all very important topics you need to know about to make a good decision for your financial future.