Refinancing a mortgage loan is defined as paying off an existing loan and replacing it with a new one. Because refinancing can cost anywhere from 3-6% of the loan’s principal, it is important to determine whether your reason for refinancing the loan offers any true advantage.
The common reasons for refinancing include: the desire to consolidate an outstanding debt; capturing some of the home’s equity to finance a large purchase; converting from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage; the opportunity to shorten the life of your mortgage; or to obtain a lower interest rate.
Typically the costs of refinancing are comparable to taking out an original mortgage. This is because refinancing requires the same steps: a current appraisal, title search and application fees. It is important to explore all of your options for refinancing with an experienced professional.