5 Refinance Terms to Know

August 24, 2015

Real Estate

5 Refinance Terms to Know

In the market to refinance your home? Then you need to brush up on some refinance terms so you’re not caught unaware.

  1. Mortgage Balance – The mortgage balance is the full amount owed at any specific time during the life of a mortgage. It is the sum of the remaining principal you have and any accrued interest.
  2. Mortgage Insurance – Mortgage insurance protects lenders against borrower defaults and if you are refinancing with a high Loan to Value limit and you have a long way to go in the life of the loan, your lender may require it. Mortgage insurance provides peace of mind to your lender because you pay the premiums and they are the beneficiary.
  3. Origination Charge – This is the amount your lender charges for the administrative costs associated with a mortgage or refinance application and processing.
  4. Points – Generally, when you pay points, you are paying some money upfront in exchange for lower monthly payments and/or a lower interest rate. Points are expressed as a percentage of the loan amount. For example, “three points” means a charge equal to 3 percent of the loan balance.
  5. Mortgage Taxes – These are taxes levied by state and or local governments on every new mortgage created. Since refinancing is basically the same as taking out a new mortgage, you will probably have to pay a mortgage tax again, just as when you acquired your original loan.

What are the Advantages of Refinancing?

One of the main advantages of refinancing is to reduce your interest rate. A lower interest rate can have a profound effect on your monthly payments, potentially saving you hundreds of dollars a year.
Second, many people refinance in order to obtain money for large purchases such as cars, to reduce credit card debt, or to purchase a second home. The way they do this is by refinancing for the purpose of taking equity out of the home.

A home equity line of credit is calculated as follows:

  • First, the home is appraised.
  • Second, the lender determines how much of a percentage of that appraisal they are willing to loan.
  • Finally, the balance owed on the original mortgage is subtracted.

After that money is used to pay off the original mortgage, the remaining balance is loaned to the homeowner. By making improvements to your home, you increase the value of the home. Doing this while making payments on a mortgage, you are able to take out substantial home equity lines of credit as the difference between the appraised values of the home increases and the balance owed on a mortgage decreases.

Sonja Bush with Mammoth Village Properties is ready to help guide you through the refinancing of your home. Call her today at (661) 979-9000, or email her at [email protected] to schedule an appointment.

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