Mortgage Refinancing is defined as the process wherein the borrower applies for a new loan usually at a lower interest rate in order to pay off an existing loan with a higher interest rate. The other common reason when a borrower opts for a mortgage refinancing is when the borrower wants to change the loan from a variable loan to a fixed loan.
The lenders or the loan providing companies are attracting an ever-increasing number of customers by offering a lower interest rate. Majority of the masses prefer to avail a secured loan rather than opting for an unsecured loan as a secured loan can be availed more easily at a lower rate of interest.
A major benefit to avail a mortgage refinance is that it improves the credibility of the borrower. He or she might be facing difficulty in paying of the monthly installments that keep on varying if it is a variable mortgage loan. On the other side, the ability to pay back the loan in a shorter duration of time improves the credit rating of an individual.
A mortgage refinance can be availed by an individual offering his or her property as a collateral security to the lender. Property is offered as a security to protect the individual interest of the lender who can claim rights of lien over it in case the borrower fails to pay back the entire amount of the loan or goes bankrupt.
However, it needs to be noted in the light of the above-mentioned benefits that before deciding whether or not to select mortgage refinancing, you must take into consideration various important factors. These are:
– the penalty clauses mentioned in the terms of agreement
– the degree of risk involved
– the mode of mortgage refinance
For instance, there have been reported situations wherein the borrower ends up paying an increased amount of installment over the periods of time after availing the inaugural discount. Rest assured, it can be stated that mortgage refinancing is a boon for the borrowers who are bearing unusually higher interest rates charged by the lender and face a higher risk of losing the property they have offered as a collateral.