Tuesday, September 14, 2004

Importance of Mortgage "Financing and Refinancing"

  • Do you know what asset based lending actually is?
  • Have you any idea of impact of interest rates in mortgage refinancing?

    Every prospective homeowner needs to know the basic financing and refinancing fundamentals before going for a mortgage deal. This article “Significance of mortgage financing and refinancing” is an effort to acquaint you in this direction.

    Mortgage Financing is a financing mechanism for the purchase or refinance of real estate, where the borrower pledges real estate to the lender as a security for the loan. It is recommended when the borrower wants to purchase a property, consolidate debt, refinance etc. It is a better way to take equity out of the property.

    Every person wants, to get at least the optimum financing required to have the home purchase deal. Mortgage financing comes as a stand-by for those who have difficulty in qualifying for a traditional mortgage loans. It is a very simple solution to home ownership, provided you have bad credit or very limited cash resources.

    When going for the mortgage financing the following questions are asked by the lenders:
    1. What is your gross income per month?
    2. What are your current monthly liabilities?
    3. How much money do you have available for down payment?

    There are varieties of finance programmes available in the market, at a very competitive rate. Getting a good and a reliable lender is a big challenge, which is confronted by many mortgage lenders. Getting a good lender is as important as getting a good mortgage deal. While shopping around for a mortgage lender it should be kept in mind, that the mortgage lender should be the member of mortgage bankers association of America. ( MBA ). Any mistake, in selection of a mortgage lender can make a mortgage financing process a bit confusing.

    Benefits of Mortgage financing:
    There are certain pros of mortgage financing. They are as following-
    1. It is a good tool for owners who want to make the purchase happen.
    2. It allows you to use your cash flow for other urgent needs.
    3. It is very beneficial for a prospective buyer as the terms of deal are very negotiable.

    Presently, when the rates of interests are continuously showing up an upward trend, many prospective homebuyers are thinking about refinancing their current mortgage deal.

    Mortgage Refinancing is a transaction in which a new mortgage is issued that is greater than the unpaid principal balance of the previous mortgage. It is a vehicle for taking out the cash from home’s equity.
    Before refinancing it is must that you should first determine your financial mortgage related goals-
    1. Are you looking to improve your monthly cash flow?
    2. Do you want to reduce your mortgage term?
    3. Do you want to spend the equity that has accumulated in your home?Only after the settlement of these goals, the obtaining of right mortgage for particular need could make any sense.

    Benefits Of Refinance Mortgage:
    Any mortgage product is compared by its pros and cons. In the case of refinance mortgage, the advantages are more than that of disadvantages.
    The following are the benefits of taking a refinance mortgage. It helps the borrowers to -
    1. Lower current interest rate.
    2. Convert adjustable rate mortgage ( ARM ) to a permanent fixed interest rate.
    3. Convert fixed interest rate into a ARM.
    4. Turn equity into cash.
    5. Convert to a shorter term to pay off the loan more quickly.
    6. Eliminate mortgage insurance.
    7. Lower monthly payments.
    8. Create cash flow.

    However, refinancing is mostly opted when the rates of interest are 2% lower than the current mortgage. Besides, by taking up refinancing you can avail benefits of no-cost mortgages, which include no non-recurring closing costs. You can also analyze how soon you can save money on your monthly mortgage payments.

    Concisely, both mortgage financing and refinancing are good financing mechanism, and play a vital role in the purchase and refinance of a real estate.