The Benefits of Home Refinancing by Dustin DiMisa

For many homeowners, mortgage refinancing can provide a valuable opportunity to adjust the terms of their original loans. Here are some of the most common benefits to refinancing a home:

1. Securing a lower interest rate. The interest rate helps determine the monthly sum that homeowners pay toward their mortgages, so refinancing may result in lower payments. Along with prevailing market conditions, personal factors, such as improved credit ratings, can play a significant role in obtaining lower rates.

2. Eliminating private mortgage insurance (PMI). Homeowners who make a down payment of less than 20 percent of their new home’s value may be required to pay PMI, which was designed to protect lenders against loss. If homeowners have increased their equity in their houses since then, refinancing can eliminate the additional insurance payment.

3. Changing the term of the mortgage. Refinancing allows homeowners to shorten or lengthen the durations of their mortgages, both of which may yield certain benefits. Shortening mortgages from 30 years to 15 or 20 years, for instance, speeds up the payment process, reduces the amount paid in interest, and often carries lower interest rates. Lengthening the payment period, on the other hand, will lower the monthly payment but increase the total cost of interest.

4. Changing the type of the mortgage. For homeowners with adjustable-rate mortgages, which tie the monthly payment to a market interest rate, refinancing can provide an opportunity to choose better terms or switch to a fixed-rate loan.

5. Obtaining funds through cash-out refinancing. In its most basic form, refinancing involves creating a new mortgage to pay off the balance of one or more existing home loan(s). A cash-out refinance allows homeowners to access additional funds by taking out a loan that exceeds the amount needed to pay the original mortgage.

About the author:

Dustin DiMisa possesses nearly a decade of professional experience in residential real estate lending. He currently serves as President of InterContinental Capital Group, a mortgage lender based in New York City and approved by the Federal Housing Administration.

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~ by Dustin DiMisa on June 23, 2011.

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