Refinancing Mortgages – What is Involved?

Re-mortgage Quotes and Applications Can Save a Borrower Thousands

Jul 31, 2009 Fleur Hupston

During these tough economic times, homeowners have been having a hard time making mortgage payments. Refinancing a loan can reduce monthly repayments on a home loan.

Is there a difference between a re-mortgage or loan refinancing? Basically the same thing, a re-mortgage involves accepting a loan from a new lender, while a refinance loan can be provided by the existing lender or a new mortgage provider.

Why and When Should a Loan be Re-mortgaged?

When terms of the original house mortgage loan is re-negotiated, it usually means that the borrower can increase the amount he or she is borrowing which is often possible due to the increased value of the property. A re-mortgage can allow a borrower to consolidate debt by freeing up money to pay off credit cards or personal loans, or it may be a way of financing home improvements.

Many borrowers choose to switch their mortgage loans when special deals expire (such as a two-year fixed interest rate) and then take the opportunity to seek out the most competitive and most suitable mortgage loan on the market. This can potentially save hundreds every year in monthly mortgage repayments.

Re-mortgaging can allow for a better mortgage deal, less interest and better terms which can save a borrower a great deal of money over the life of the loan, or can be a good option if extra cash needs to be raised.

What is the Cost of Refinancing Mortgages?

Taking out a re-mortgage does not have to be an expensive process. Many mortgage lenders now provide specialist re-mortgaging services and some of these charge no fees for legal costs. In the USA, the government is working in tandem with lenders to refinance loans and prevent foreclosure in the current economic crisis.

In other countries it is also a good time to refinance a loan since lenders are offering very low interest rates in order to keep people in their homes. Mortgage payments can become very affordable, check on line for re-mortgage quotes or contact a mortgage broker in order to calculate the amount of money that can potentially be saved over the life of the loan. A home owner should compare current mortgage rates with advertised rates and factor in costs, if any, to see if refinancing is worth while.

Refinancing Costs and Fees can Include:

Valuation fees: (although some lenders provide free valuations) which is a survey to reassess the value of the property.

Mortgage arrangement fees: To secure the most competitive deals, whether they are for fixed-rate mortgages or discounted mortgages, lenders often attach an arrangement fee. All borrowers need to research exactly what the arrangement fee costs and what the terms of repayment are.

Early repayment charges (ERC's): Redemption penalties are designed to keep borrowers with the lender for a certain time, at least until the lender has made a profit. Redemption penalties are particularly high during the first couple of years of a mortgage. Be sure to check whether the lender has attached early redemption charges in the original contract.

Legal and administrative fees: These fees are often applied to a re-mortgage loan to cover the costs of hiring a solicitor and setting up the mortgage, but once again check among the different lenders and remember there is a lot of competition among lenders at the moment so try to negotiate with the lender.

Broker fees: If a mortgage broker is used to find the best deal, this will be paid for by the borrower. Most brokers charge homeowners 1 per cent of the mortgage value, depending on the loan.

Mortgage Indemnity Payments: Also referred to as 'higher lending charges', this fee is designed to protect the lender in the event of a borrower falling into payment arrears. The borrower is being asked to pay a premium to protect the lender. Be sure to check this out, since many lenders have scrapped higher lending charges but on some loans these charges still apply.

Despite the fact that there are costs and fees involved, refinancing a loan may still be well worth it in the end, especially if the original mortgage has been in place for a few years.