First thing's first. What is a home mortgage? To many, this is considered the best opportunity to eventually own a home. Through a home mortgage, lenders are secured of repayment of loans by keeping the residential property as collateral until the full payment is made.
Subsequently, full ownership of the property is then transferred to the borrower. In the occasion that full settlement is not reached, the lender reserves the right to sell the property in order to recover losses in relation to the loan.
For added information, an initial 5% to about 20% deposit is normally required from the buyer on the purchase of a house. This is called the down payment. This is taken into consideration when taking a loan for home purchase.
Terms of payment for home mortgages can range from 15 to 30 years. Some lending institutions now consider terms of up to 40 years. During this time, a fixed or adjustable interest rate is incorporated in the regular remittance of payment, depending on the negotiated arrangements.
Now, at the end of the mortgage term, borrowers are usually presented with the option to refinance their home mortgage. This means that the terms of the mortgage can be renegotiated to suit ones financial standing at the time of the first mortgage expiry.
There are many reasons why one should consider home mortgage refinancing. Monthly payments, for example, may be reduced. Evaluating market rates, current value of the property collateral or even ones credit performance can merit a decrease in monthly payables.
It is also possible that at the time of renegotiation, improved financial standing permits an earlier pay off of the loan. This could potentially make a significant amount of savings from the interest rates that you will be spared from.
Another possibility in refinancing is the conversion of a fixed rate mortgage to an adjustable rate mortgage. Index indicators could show more favorable status for your money's value and allow you to take advantage of lowered interest rates. Again, this is more savings for the owner.
Integration of several loans is another possibility. By refinancing a home mortgage, you could use a portion of the new renegotiated loan to pay off other debts such as credit card bills and enjoy the benefits of repaying at better terms altogether. Similarly, a portion of the excess funds, after settling the old loan, can also be used for other big ticket expenditures that you wish to acquire, like home improvements, tuition fees, etc.
With all said, emphasis on the importance on deciding on a home mortgage refinance is required. Despite all the positive information listed above on refinancing, keep in mind that a home mortgage refinance is still another loan. It may settle your old mortgage and even other debts if you choose to consolidate them, but a loan is still something that you owe.
Regardless of the great 'interest rate deal' and terms of payment you strike, a home mortgage refinance still holds your residential property as collateral until all debts that it covers are paid.
