Does free refinance of mortgage help
Article by Idan Solimani
There maybe a variety of reasons a person may decide to go in for refinancing of the mortgage on their home. The obvious question here is will free refinance of mortgage help and the simple answer is yes. However the whole issue needs to be examined from all angles to determine the best way to achieve free refinance of mortgage.
First off let’s understand what refinancing is all about. Let’s say you took out a loan at the rate of 10% to pay for the new apartment you’ve bought. Due to the economic situation the rate of interest has gone down to 8%. Obviously it would make sense to take out another loan at this lower rate of interest, pay off the earlier loan and now continue the mortgage payments at a lower amount than before. This is the most common reason for refinancing a mortgage but there are a few other reasons are well:-
1.Change in the ARM – In a situation when the AMR (Adjustable Rate Mortgage) is about to increase substantially, refinancing might be considered as an option to save money and keep the payments low. 2.Debt consolidation – Homeowners in debt may take up the refinancing option in order to consolidate all debts under one header i.e. their home loan to save on interest and make their monthly installment payments easier. 3.To cover expenses – Sometimes refinancing may be done in order to acquire money to cover for expenses like a wedding or vacation or hospitalization even.
So is free refinance of mortgage offered by financial institutions? It most certainly is. But one needs to keep in mind the factor of closing costs. If for instance you are making savings of 2% on your refinance, but the closing costs are in the region of 3%-5% then it makes absolutely no sense as the objective of savings is lost. The costs of refinancing which also include administrative and underwriting costs which are often demanded upfront by the lenders put additional financial burden on the borrower. These factors must be accounted for while determining free refinance of mortgage.
Ideally when the borrower is approaching a financial institution to enquire his refinancing options, he must ask for something known as the Good Faith Estimate of Closing Costs. This is a document required by US law to be provided by the lending institution to the borrower. It will give all the information and approximate numbers involved and help the borrower decide if the deal is indeed a free refinance of mortgage.
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