Mortgage Refinancing

Mortgage refinancing means getting the lender to revise the terms and conditions of an existing mortgage and making the deal better for the borrower. Generally it means lowering interest rates, and / or extending repayment term. Mortgage refinance may therefore bring down the equated monthly installment.

At times though, refinancing a mortgage leaves the borrower with adequate cash on hand. This may be because part of the mortgage loan has been repaid, and therefore, the outstanding amount is less. The second reason is mortgage loans are taken for long term, during which the income of the borrower keeps on increasing. Even the value of the property increases during the term. Effectively, the borrower becomes eligible for higher amount of loan.

This higher amount of loan can then be utilized to repay any costlier debts, or consolidation of debts. At times, such refinancing may even be done to raise funds for down payment on any investment property. Like second mortgage, refinancing mortgages implies the presence of a mortgage loan, which is to be refinanced. Unlike second mortgage, however, refinancing does not result in a different loan distinct from the existing mortgage. Instead, it replaces the existing mortgage.

New mortgage refinancing often becomes an expensive proposition. The purpose of refinancing an existing mortgage is to get a better deal. When it comes to new mortgage refinancing, such deal can be better only when the interest rates have been falling sharply, or there are some government legislations because of which lenders are more amenable to extend the repayment term. When repayment terms are extended the monthly installments payable on mortgage comes down, thereby the borrower has a more comfortable cash position.

Refinancing a second mortgage is also possible. Generally, the same lender is approached for obtaining a refinance. If the terms and conditions offered by the lender are acceptable to the borrower, the refinancing deal is finalized. If, however, the borrower does not find the deal acceptable, he can approach another lender.

In case of second mortgage, the borrower cannot generally approach another lender while keeping the first mortgage with the first lender. Effectively, even if the borrower gets a better offer out there in the market for second mortgage, he cannot take the opportunity, unless he can get the lender offering better terms for second mortgage takeover the first mortgage as well.

Even lenders take a different view in so far as refinancing and second mortgages are concerned. Lenders would offer refinance on terms and conditions that are similar to the first mortgage, such as longer repayment period, and lower interest rates. But when it comes to second mortgages, lenders tend to charge higher rates and try to recover the funds within the balance period of the existing mortgage.

Mortgage Refinancing Cost plays a crucial role in deciding whether to take a second mortgage or opt for refinancing an existing mortgage. When the same lender refinances the mortgage, costs would be considerably lower. However, when refinance is to be obtained from another lender, the costs would be considerably higher, because the new lender would have to verify the applicant's title to the property, confirm the value of the property, and check the credit scores of the applicant(s).