What is Mortgage Refinancing?

For Bryan, a Boston based media professional, bad luck continues to follow. Seven years back, he had opted for a home mortgage loan. Back then; he had just landed a job of a reporter with Boston’s best-known daily. He was under the impression that he his salary would prove enough to meet the steep repayment amount. And he was right.

Initially, everything was going hunky dory for Bryan. He was receiving regular payment and was able to repay his mortgage amount as per the schedule. But then one day, he learnt that the newspaper was being bought over by a media mogul. He also learnt that the jobs of many of his colleagues were at stake. A fortnight later, Bryan received the marching orders from his new employer.

Bryan tried to get a job in other dailies that were being published from Boston. But alas! Lady luck was not on his side. Finally, Bryan decided to try his hand at freelancing. In the mean time, his outstanding mortgage repayment amount kept on increasing and today Bryan’s meager income is being made to face an avalanche of outstanding debts.

Now, if I were to face a situation like Bryan, I would have immediately opted for mortgage refinancing. Now, you will question me, “ What is mortgage refinancing?” Well, as the name suggests, in case of mortgage refinancing, you refinance your mortgage. In other words, you opt for a fresh mortgage in order to repay the previous mortgage amount.

Mortgage refinancing is a blessing for a person like Troy who is associated with the Boston firefighting team.  He had mortgaged his house with a local Boston based mortgage broker. However, he was finding it difficult to repay the high mortgage amount. Going in for a mortgage refinancing not only helped him secure peace of mind, he was also able to significantly reduce his repayment sum as the broker agreed to charge him a lower rate of interest.

If you are interested in mortgage refinancing, you should remember that you will have to offer the same asset that was used in the previous mortgage deal. For instance, if you obtained the mortgage amount against your house, then while going in for a mortgage refinancing, you will have to pledge the same house. You are not permitted to offer your car as a security. Similarly, the money obtained from mortgage refinancing cannot be used for any other purpose. It can be utilized only for canceling out the previous mortgage amount. However, if any amount left after meeting the previous mortgage amount, you can utilize the same for any other purpose.

However, while going in for mortgage refinancing, you have the freedom to opt for any mortgage lender. In other words, you can either opt for the same lender or some other lender. Justin, a native of Boston, decided to opt for a new lender, when he found that his existing mortgage lender was charging a high rate of interest.

Now, many of you will question, “ Will the amount that is receivable from mortgage refinancing match the amount received from my previous mortgage?”

Well, the amount available for mortgage refinancing is decided after taking into consideration:
Your income
The nature of your employment- i.e. permanent or temporary
Your repayment ability
Your previous repayment history i.e. track record of your credit repayment
Any other loans or credits taken by you.  It is obligatory on your part to disclose all the existing monetary obligations to your broker

However, before you go in for mortgage refinancing, it is essential to compare the pros and cons of the same. Otherwise, mortgage refinancing might prove to be a bad financial deal just as it proved for Nelson, our Boston based architect. Well, he was finding it difficult to continue with the high interest charges that were being levied by his existing mortgage lender. So, he opted for mortgage refinancing. However, the penalty imposed for premature closure of the mortgage account, wiped out the gains that Nelson had made from mortgage refinancing.

Similarly, there are other costs associated with mortgage refinancing. You are expected to spend few dollars on expenses such as appraisal fees, title search, legal costs, application fees, origination and insurance fees etc.  In addition, you are also expected to bear a ‘closing cost’. This particular cost can be anywhere between 3%-5% of the home price.

Mortgage refinancing can prove to be a good option if you are unable to meet your current mortgage obligation. However, you must carefully consider all the facets and aspects if you want to be in a win-win situation.

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