Home Mortgage Refinancing is on the Rise

Refinancing home mortgages has become especially popular, particularly in today’s housing and financial climate. There are many reasons to refinance a home mortgage, such as trying to take advantage of lower interest rates. However, taking cash back from a home’s equity tops the list.

More and more people are faced with financial difficulties, either from the loss of a job, crippling medical bills, sometimes even a combination of factors. For most homeowners, the equity in their home is the largest, and sometimes only significant liquid asset they have access to.

Refinancing in order to take cash out is often a means to consolidate debt, cover living expenses such as in the job loss example, pay for a child’s college tuition, or some other pressing cash need. Unfortunately, many people lost their “other” large liquid asset, their various investments, in the terrible crash of the last few years. A lot of people had planned to use those assets to meet upcoming or planned financial obligations only to find their 401k, pension, or other investments no longer worth what they once were. All to often, this has been coupled with the “double-whammy” of layoffs, job losses, and downsizing.

After general cash purposes, the most common reason would be related to interest rates. This might be because rates have dropped significantly since the time the original mortgage was taken, or because an “ARM”, or Adjustable Rate Mortgage is getting ready to adjust to a significantly higher rate, meaning higher monthly payments. In this case, locking in a fixed interest rate mortgage might be a smart move.

A homeowner that saves just one-half to one percent from their current interest rate, they can realize a substantial savings over the loan’s term. However, it’s important to realize that it can cost between 3% and 5% of the loan in order to refinance. In this case, refinancing may cost more than will be saved – plus that cost is usually required as upfront payment.

In most cases where the interest rate difference is greater than 1 percent though, a home owner might be able to realize a significant savings, possibly a huge savings if the original mortgage was one with a relatively high interest rate, or the adjustable ARM has ballooning payments.

One caution however is to avoid compounding a problem by refinancing when there might be difficulty meeting the repayment obligations, especially if you are close to paying down your mortgage completely.

Regardless of the reasons for considering refinancing home mortgage, you’ll want to talk with a qualified mortgage broker or loan officer. You may find that the original lender isn’t as helpful as you’d like – after all, it may not be in their best interest. Shopping around for better refinance offers isn’t hard, and may pay off in big dividends. Any reputable mortgage broker should be more than happy to talk with you in detail, explain your options, and take the time to go through various refinancing scenarios with you.