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What is Mortgage Refinancing?

Mortgage refinancing is taking on a second loan, secured against the same asset, to pay off a first loanon that asset.For most people mortgage refinancing is about buying a second home loan or mortgage, and using thatto pay off the first mortgage or loan in place. There can be a lot of paperwork and time spent inmortgage or home loan refinancing, so why do people go through that effort?If you have an existing fixed rate mortgage, then you are almost certainly paying more interest on theloaned amount than if you were to sign a new mortgage now, taking advantage of record low interestrates, but probably on a floating rate package. This would reduce your monthly outgoings.Mortgage refinancing is now over 70 per cent of the activity in the USA Mortgage market in 2009,although it has dropped off a bit recently thanks to continued economic and employment concerns.Sadly foreclosures make up much of the rest of the activity in the mortgage market, so if you can refiinstead of defaulting on payments and ultimately losing your home, you should consider this optionseriously.

How do I pick the Best Mortgage Refinance Package for Me?

According to the Mortgage Bankers Association, the average interest rate on a 30-year mortgage in Aprilwas 4.76 per cent. This was down from 5.14 per cent in March. This is probably lower than the mortgageinterest rate that you are paying now. Be warned, however, that there are big variations in the rates andfine print from different banks, so you need to shop around and do your research. Experts advise thatbecause of some of the problems you may encounter (see below), it only makes sense to look at a homeloan refinance option if it is significantly lower.There are two approaches that tend to be the most popular in the refinance game. The first is to workwith a Mortgage Broker. They will have a good grasp of the different offers, promotions and stringscurrently being attached in the marketplace

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and with the economy as volatile as it is right now, thesetend to change from week to week. You can find good Mortgage Brokers from refers or by researchingonline.The other approach is to carry out your own research directly. This is normally done online, by lookingboth at the mortgages that banks and credit unions are advertising themselves, and at the comparisonslisted on price comparison and mortgage search engine sites. You may get a much wider view of themarket by doing this, but you will need to spend a lot of time reading all the terms and conditions toreally understand what is best for you.

It sounds great, but what problems are there with Mortgage or Home Loan Refinance?Mortgage Refinancing Tax Implications:

In April, President Obama said that with interest rates so low, mortgage refi was like a tax cut. Not true.Since the interest paid on a low or mortgage is normally tax deductible, if you refinance and reduce yourinterest payments, you are likely to end up paying more tax.The good news, however, is that you are likely to save much more on your monthly mortgage bills thanthe extra tax you pay, so you still come out a winner.

Paying off Your Mortgage Could Take Longer:

Mortgage refinancing often involves working out a longer tenure for your loan to reduce your monthlyoutgoings.While you benefit immediately from lower costs, you have the liability of the loan under your name forlonger. If you plan to be mortgage-free or even debt-free, then this will delay that moment of peace thatyou might be dreaming of.

Interest Rates are Lower, But Getting a Mortgage is Harder:

Sure banks are being encouraged, even ordered, by government to lend more and overcome the CreditCrisis (or Credit Crunch). However we have to remember that banks making bad loans is a big part of what got us into this mess. Remember sub-prime loans everyone?

Banks still have lots of bad debt, or ‘toxic assets’, on their books, and they only what to take safe

business on now. Credit checks are more stringent, valuations are more conservative, and the demands

of ‘skin in the game’ are now higher.

If you have any credit issues, then getting a new mortgage might be tough. The process is time-consuming, so you may need to get your credit history sorted out first before applying. Better to havethe bird-in-the-hand of your current mortgage than end up with nothing at all.We are hearing stories of banks arbitrarily changing their lending rules week to week, as they get new

evidence of lending issues or on the whim of the bosses when they can’t sl

eep at night. One bank

recently decided it wasn’t going to lend for one bedroom flats anymore, while another decided no more

foreign owners. The cash component that an owner needs to put in has also increased. No more 90 percent, 100 per cent, or insane 125 per cent loans.Buyers are being asked to cover 10 per cent to 20 per cent of the down payment in their own cash,