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Refinancing California Mortgage Loans How Does A Refinance Work

Many homeowners are opting for a mortgage refinancing to obtain a better mortgage rate, shorten a mortgage term, or acquire extra cash. Prior to completing a refinancing application, homeowners must understand the process and know what to expect. Here is a quick guideline on how mortgage refinancing works.

What is a Mortgage Refinancing?

If selecting to refinance an existing mortgage loan, homeowners apply for a new mortgage, which pays off and replaces the old. Thus, homeowners have the opportunity to obtain a new mortgage lender. Each lender offers different home loans. Initially, homeowners may have received a bad mortgage loan. Refinancing presents the perfect chance to get out of a bad loan, and attain a mortgage loan with better terms.

Requirements for Refinancing

There are minimum requires for refinancing a home loan. However, to benefit the most from a refinancing, the new mortgage rate should be at least two points below your old rate. If a rate reduction does not occur, it's not worth refinancing. Furthermore, a refinancing is more suited for individuals who anticipate remaining in their home for several years.

Refinance criterions vary lender-to-lender. Overall, homeowners must have equity in their home and steady employment. If using a prime lender, a good credit rating is required. On the other hand, if your credit score is low, apply for a refinancing with a sub prime mortgage lender. These lenders have a range of refinancing options available to homeowners with a negative credit rating.

Refinancing Costs

Before applying for a refinancing, homeowners should anticipate paying closing fees. Because a mortgage refinancing creates a new home loan, closing costs are unavoidable.

Typical refinancing costs include application fee, title search, title insurance, lender fees, loan origination fees, prepayment penalty, appraisal fee, and miscellaneous fees.

Homeowners may either build a cash reserve to pay for this expense, or select a mortgage option with 103% financing.

Mortgage Refinancing Quotes

To save money on a mortgage refinancing, research different lenders and obtain refi quotes. Quotes are beneficial because they include all estimated costs. Thus, homeowners are not blindsided at closing. You may easily obtain quotes by using an online mortgage broker. Within minutes, brokers provide up to four quotes from different lenders, which include estimates on closing costs, interest rate, terms, and mortgage payments.
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Article Added on Friday, August 18, 2006
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