Mortgage refinancing is on the rise. Lower mortgage rates were generated by early 2009 Obama Administration relief efforts designed to help underwater homeowners and stabilize the housing market, made mortgage refinancing easier and provided hope to the beleaguered. Underwater borrowers can realize big benefits through mortgage refinancing.
Many of these borrowers took advantage of the recent housing market boom by taking on mortgage debt they had no ability to repay. Aggressive and unscrupulous lenders fed the frenzy by offering adjustable rate mortgage loans with extremely low introductory rates that rose dramatically after the deal was closed, forcing borrowers to default. Many of these borrowers were left underwater, so to speak, when the housing market crashed, reducing home values to amounts lower than their outstanding mortgage balances. With no options left to them, millions of people simply walked away from their homes, allowing their lenders to foreclose and forever ruining their credit. Mortgage refinancing before default or foreclosure may help to turn things around for the remaining borrowers who stayed with or are on the brink of losing their homes. Average interest rates hovering at or near 5 percent for 15, 20 and 30 year fixed rate first mortgage loans as of early May, 2009 make mortgage refinancing an attractive and affordable option.
Mortgage refinancing functions by either paying off an existing mortgage loan or combining existing first and second mortgage loans into a single first mortgage loan. It goes without saying that lower interest rates obtained through mortgage refinancing equal lower monthly mortgage payments. Mortgage refinancing does not involve just lower interest rates, however. You can also either increase or decrease the term of your mortgage, which has a direct effect on the amount of your monthly payment. Mortgages with shorter terms generally have lower interest rates, and the borrower will pay the loan off sooner because more of the monthly payment goes toward paying down principal. The good news is that this decreases your total interest costs. The downside is a higher monthly payment. On the flip side, longer mortgage terms reduce the monthly payment but increase total interest costs by virtue of the greater number of payments needed to pay off the loan. Either option is worth considering, depending on your needs.
Whichever way you choose, mortgage refinancing can be the answer to your prayers if you are facing foreclosure. Even if you are not, mortgage refinancing can provide you with an excellent way to put extra cash in your pocket each month and increase the equity in your home at the same time.