Refinance or refinancing is the process of acquiring a new mortgage to pay off the balance of an existing mortgage. Typically the new mortgage comes with better terms and condition. Also called as Refi.
Here are some typical scenarios, usually when people consider refinancing:
- When there is a lower interest rate offer
- Borrower’s will to shorten or lengthen repayment period
- Reduced monthly payments
- Cash-out refinance
- Reduce or stop private mortgage insurance (PMI),
- Opportunity to convert Adjustable rate mortgage (ARM) to Fixed rate mortgage etc
Refinance comes with some cost called refinancing costs. Generally refinancing costs include the following:
- Cost of new loan
- Closing cost of existing loan
- Home appraisal fee
- Application fee
- Title search
- Credit report fee
- Discount points and
- Loan origination fee etc.
Refinancing can be a good financial decision. But before making the decision carefully calculate the long-term effect as well.
Otherwise, it could lead you to pay more in interest until full repayment than with your original mortgage.
You can seek help from any personal financial advisor if you think there is a chance of mistake.