Mortgage Refinancing - Refinancing Your Home Through a 2nd Mortgage Loan

Mortgage Refinancing Calculators

This mortgage refinancing calculator will tell you whether you should refinance your current mortgage loan on a lower interest rate. It will compare your currently monthly mortgage payments with your payments on the new refinanced interest rate, outputting the net savings you will have (Monthly Payment Reduction). The mortgage refinancing calculator is so sophisticated that it will also output the break even point on your closing costs. Here is a sample output generated from this calculator:

" If you refinance your current 5.50% mortgage to a 4.00% mortgage, your monthly payment will increase by $3,924.96 and you will save $354,867.96 in interest charges over the life of the mortgage. However, in order for this refinancing to yield any savings at all you will need to stay in your current home for at least 19 months. That's how long it will take for the monthly interest savings to offset the closing costs attributable to refinancing."

Mortgage refinancing is when you take out a new secured loan in order to pay off your current mortgage loan (that is usually at a higher interest rate). The new loan is "secured" against your current home or property meaning that if you fail to make payments towards the new loan, the lender has the right to possess your home in order to cover his losses. Home mortgage refinancing is typically done when you have a mortgage on your house and borrow a 2nd loan in order to pay off the first one. It is therefore very important to know whether the money you will save from refinancing into a 2nd loan exceeds the costs & fees of taking out that loan.

What are the benefits of mortgage refinancing? Look at it this way. A house is probably the biggest asset you will ever own. Likewise, your mortgage payment will be the biggest expense on your monthly budget. It would be very smart to use the equity you have built up in your home to reduce your monthly payments on your mortgage loan. You could use this extra cash in savings to pay for your children's education, or to pay off credit card debt or invest in a mutual fund.

It is usually best to refinance a mortgage loan when the US Federal Reserve cuts interest rates. While your credit score and the amount of down payment you have on your home influences the interest rate you will pay, the most important factor that influences your interest rate is the current market rates set by the Federal Reserve. Mortgage refinancing gives you the option of refinancing your mortgage loan at a time when the Federal Reserve is lowering interest rates, helping you save money on your loan and have more cash flow.

Another advantage of mortgage refinancing is the fact that you can shorten the amortization term of your mortgage loan. For example, if your original mortgage term was for 25 years and you had been paying for the last 7 years, you could shorten the amortization term of your loan from 25 years to 10 or 15 years. This will result in you having to pay more money every month, but the savings that comes from a lower interest rate will offset the extra payment. What's more, more of your monthly payment will be going towards the original principal loan, which means you will be building equity in to your home a lot faster.

Switching Adjustible Rate Mortgages (ARMs) to Fixed Interest Rate Mortgages

When interest rates are low, everyone loves to have Adjustible Rate Mortgages (ARMs) because their monthly payments are low due to lower interest rates. However when the Federal Reserve raises interest rates, people start to despise ARMs due to higher monthly payments. Many people select ARMs because they are less optimistic about their financial futures, but as their incomes become steady and stable, many people choose to switch from Adjustible Rate Mortgages to Fixed rate mortgages because they will live in their home for many years to come.

Many other people take out a cash-out refinancing deal where they will refinance their mortgage into an amount higher than their current principal balance, using the extra cash for other things such as home improvements, paying off high interest credit card debt or sending their kids to college.

No Private Mortgage Insurance (PMI)

If you could not come up with more than 20% down payment on your first mortgage loan, you may have had to purchase Private Mortgage Insurance (PMI). If your house has gone up in value since then and you have more than 20% equity built in your home, a mortgage refinancing loan will mean you no longer have to pay Private Mortgage Insurance anymore!

Taxes and Mortgage Refinancing

You know that mortgage interest is tax deductible. You should also know that you pay way more interest in the early years of your mortgage than in the latter years. This means you could deduct more interest off your income in the early years of your mortgage. Now if you refinance your mortgage into a lower interest loan, you may actually save money on your tax liabilities. This is how it works; you refinance your mortgage more than your principal balance, and use the extra cash to pay off your high interest credit card debt. You are actually eliminating high interest credit card debt that is NOT tax deductible with mortgage interest that is indeed tax deductible! This could result in significant savings and more cash flow for you every month!