Are you trying to purchase a new property? If so, you might be in the market for a mortgage loan. In simple words, a mortgage loan is a secured loan that is made available against real property as collateral. There are many types of mortgage loans and typically their characteristics vary based on size of loan, maturity, interest rate, repayment terms, and various other parameters. Mortgages can be obtained for different types of real properties, including residential and commercial properties.
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While mortgage loans come with various features, they are broadly categorized as fixed interest or variable interest mortgage loans (floating or adjustable mortgage loans). A combination of the two is also possible.
Typically, the variable interest mortgage loan will be fixed interest for a pre-specified duration, after which it will become variable again in response to some market index it is tied to. On the other hand, a fixed interest mortgage loan will be fixed at a certain interest rate for the duration of the loan’s life, which in turn could range from ten to 30 years.
Mortgage Refinancing Could Mean a Better Future for You and Your Family
Mortgage refinancing, in simple layman terms, refers to the process of obtaining a new secured loan to repay an existing mortgage loan on the same property. In other words, it could be considered a swap between two loans, with the end result often being net savings exceeding hundreds or even thousands of dollars every year.
While considering mortgage refinancing, market interest rates are often the most important consideration under certain circumstances. The bundle of savings could make all the difference in your financial future.
Is Mortgage Refinance Right for You?
Individual circumstances often dictate whether or not mortgage refinancing is appropriate for an individual. If the overall savings are greater and the difference in interest rates is substantial, then it would be more appropriate to explore mortgage refinancing further.
The Advantages of Mortgage Refinance
Interest rate is not the only consideration. There are several others, such as lower monthly payments, a more advantageous loan term, improved repayment options, change in terms (fixed vs. variable or vice versa), debt consolidation, or even the opportunity cash out with extra cash.
Some of the Disadvantages of Refinancing
The main downside to refinancing your mortgage is that you might have to pay high closing fees depending on how your lender’s refinancing program is structured.
Overall, a comprehensive assessment must be made using spreadsheets and other comparison tools available online.
Evaluate your Credit Standing and Financial Situation
Before applying for a loan, evaluate your credit standing. If your credit score is not at an optimal level, what can you do to improve your credit standing? You might have to increase your credit line, paying off balances, etc. Before applying for any loan, it is in your best interest that your credit score be as high as possible.
Analyze your family income and expenses in detail and estimate how much you can afford in monthly loan payments.
Compare and Shop
The market is flooded with thousands of lenders, each providing their own programs. Each program has its own set of advantages and disadvantages, as also financial implications associated with loan terms. Create a detailed comparison table or spreadsheet to analyze all these options and zero in on a program that matches your needs effectively.
Take some time to educate yourself and try to understand what mortgage loans are all about. Without understanding the different terms involved, how can you recognize good a lender might offer, or compare the offers from lenders?
Make sure you fully understand the different variables of a mortgage loan.
Read Fine Print
It cannot be stressed enough how important it is to carefully go over the fine print before proceeding to complete any mortgage loan application. The more thoroughly you understand the various terms and their implications included in the small print, the more likely you are to avoid future problems with your lender.
Ask for a Good Faith Estimate
Request the mortgage loan provider to provide a good faith estimate of all costs involved. It is a legal requirement and the company must comply with your request if you so make it.
Check if There Are any Prepayment Penalties
Some mortgage lenders impose a prepayment penalty. Read the loan’s terms to determine if there are any prepayment penalties associated with the mortgage loan.