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The Basics on Refinancing Your Mortgage

By Beverly Manago

If you are behind on your mortgage, it is quite easy to suddenly panic and start feeling helpless, particularly if you know very little about real estate. Many of the sites out there confront you with either incomprehensible jargon or information so simplistic that it is practically dishonesty. Here is some basic information to get you started on your search for options, to serve as a foundation for the more complex data you are likely to encounter online.

Basically, refinancing is a rearranging of the terms of your mortgage. The elements you usually change are the number of installments you pay and the amount you pay per installment.

Longer-Term or Shorter-Term Mortgage

Basically, the longer you take to pay the whole of what you owe, the smaller each installment will be. A long-term deal with short payments is good if you plan to stay in your house for several more years and do not mind ultimately paying more (interest payments add up over time).

A short-term arrangement is probably better for those who have savings. Of course, you pay larger installments over a shorter period. It is a sad fact that people who earn more money can “afford” to save more on payments because they pay less interest. Furthermore, you can actually get tax incentives to substantially shorten your term, say from thirty years to fifteen. If you have been paying your current mortgage deal for enough time, you might even be able to shorten the term and still not have to raise the amount of money you pay per installment.

Fixing Your Interest Rate

For people without a fixed interest rate, their interest fluctuates along with whatever rate happens to be declared at the time. You are happy if the rates are low and frustrated if they start to rise. With this plan, the point is to pin down your rate at the most advantageous moment. If rates are low, fix your mortgage interest rate at that level before it goes up again. If you plan to stay at your current residence for at least five more years, you could be saving yourself a lot of annoying fluctuations. You can save money while making your finances more predictable.

Consider the Time

Adjusting your loan is not a simple business. You will need to start early when negotiating with your lender. Finding and hammering out a new arrangement also takes money. Therefore, you will not start saving money immediately. In fact, if you pay the refinancing costs on installment, there might be some months where you pay more than you did on your old deal, if you total the mortgage payments and refinancing-associated costs. Do take the time to calculate how long it will take your new payment arrangement to recoup the losses you incurred in negotiating the adjusted loan. See if you are actually planning to stay in your house that long. If not, then it is probably not worth it to seek a new loan arrangement.

Beverly Manago is a freelance writer focused on the real estate industry. She is also a consultant for My Single Property Websites, a web 2.0 marketing tool that lets real estate agents create stunning virtual tours and single property sites easily, with a free version available for listing presentations. She also contributes to the Real Estate Marketing Blog there.

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