Your home loan is actually traded in for a brand-new loan when you refinance, and (hopefully) your higher interest rate replaced with a lower. When refinancing, the lender with look at some of the same things they considered when processing your original. The reasons for refinancing can be numerous and beneficial, and all have to do with saving the homeowner money- in the long and the short term. Generally speaking, if you plan to be in your home for 3-5 years or more, and your new interest rate is lower by 2% or more, then refinancing will save you money.

- The benefits of Refinancing:

• By extending the payment period of your new loan or capitalizing on lower interest rates, you can reduce your payments, thereby freeing up some of your money for other purposes, such as paying off credit cards, paying for college tuition, medical bills, or making home improvements.
• By deciding to shorten the term of your new loan, you can pay it off faster- and consequently be free of it faster.
• You can reduce interest rates by switching the type of mortgage plan you have, for instance: an adjustable-rate or balloon mortgage changed to a fixed-rate loan would decrease interest rates, saving you money.

- The costs of Refinancing:

Refinancing does cost money, so you want to be sure that this is a viable option for you. The fees include: refinancing processing fees, settlement costs, title fees, appraisal fees, and any subsequent fees in order to obtain a full credit report. Taxes are also something to keep in mind, as you will have to pay certain types, such as real estate and lawyer taxes. The good news is that some mortgage companies are willing to waive certain refinancing fees such as legal and processing fees, but in exchange, you might have to accept a rate that is a bit higher than the low rate you were expecting.

Important Tip: There are ways to avoid shelling out an exorbitant amount of money upon the closing of the loan. In order to attach the closing costs to your new mortgage and still get your low rate, you can add "points." Points are 1% of the borrowed amount, and if you have already reduced your current loan amount, you can add points to your new loan and still end up with a loan superior to the current one.

• To learn about the home loan application process, click <here>
• Click <here> to learn how to calculate if refinancing your home will cost or save you money.