What is Mortgage Refinance?

Refinancing is a debt-restructuring strategy, a form of debt relief solutions, if used appropriately. In all cases, you refinance troubled mortgages, that is, mortgages that you can no longer afford to pay. In some cases, even mortgages that remain current may be refinanced at the option of the debtor. Either way, the goal of mortgage refinance is to reduce the monthly payments on the loan so that debtors, often homeowners, are able to afford the payments without straining their budgets too much. In rare cases, a refinance may save a debtor a significant amount in total interest payments over the life of the loan.

Mortgage refinance are hot topics these days because the credit crunch has brought interest rates to significant lows. Besides giving the general troubled debt relief to those who need it, this is one of the rare times debtors may actually save by refinancing their mortgages. Let’s see how refinancing works:

How Mortgage Refinance Works

Should I Refinance My Mortgage?

For people who took out sub-prime loans a few years ago and have stayed current on their mortgage, now would be a good time to refinance. Their credit scores would have greatly improved by now. And with the low interest rates at this particular time, they’d definitely get a good deal.

For people who are neither of the above but are just looking strageties to save money, the answer may not be that simple. You’ll have to calculate the total interest payments you’d make from the intended date of refinance to the maturity date of the current loan. You are then to compare this with the cost of refinancing the same loan. This cost is equal to the total interest payments you’d make on the refinanced loan over the life of the loan plus the closing costs. If the refinance cost is lower than your total of future interest payments on the current mortgage, then refinancing is ago.

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