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A Comprehensive Mortgage Refinance Index

By: victoria rillera Click author's name for more of his/her articles

A mortgage refinance index is important since during refinancing your mortgage, you will be encountering financial terms that you won't be able to understand unless you do your homework. Here is a comprehensive mortgage refinance index I have compiled in order for you to understand what each term means.

Annual Percentage Rate (APR)- calculates all the costs of the loan (closing costs, discount points and other upfront fees) and expresses them as an annual percentage of the loan amount. APR is a truer expression of the cost of the loan than the interest rate is.
Cash-Out Refinancing - The new loan is bigger than the existing loan amount due to the additional cash you take with the new loan. With this type of refinancing, you can pay-off your debts and have additional cash for your own use.
Consolidating your debts- you can consolidate all your individual loans rolling it into one new mortgage at a lower rate of interest.
Equity - A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage
Interest rate - is the percent of the loan amount the lender charges you to borrow money
Improving your monthly installments -when you refinance your mortgage at a lower interest your monthly payment would also be lower
Mortgage with Fixed Interest Rates- This kind of mortgage does not change the interest for the duration of your mortgage. It is the right type of loan for you if you go for minimal risk and want to plan ahead of your budget
Mortgage with Adjustable Interest Rates - It comes with low introductory interest rate but the interest rates are not fixed for the entire duration of the mortgage. It changes periodically and your payment amounts to the financial index your loan is tied to. The interest rate adjustments usually occur every year, with the exact time indicated in your loan contract. Adjustable Rate Mortgages are best suited for homeowners who know what they are getting into and have high tolerance for financial risk.
PITI- Principal, interest, taxes and insurance--the components of a monthly mortgage payment.
Prepayment penalty - A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule.
Rate and Term Refinancing - refers to a change in rate and term of an existing loan or mortgage. It allows you to secure a lower interest rate, change the terms and go for a lower payment plan, without paying off any more additional debts
Reducing the term length to build equity faster- the length of payment for the mortgage is reduced when the rate of interest is reduced
Use the equity of your home for your benefit- as an alternative to a home equity loan, you can choose to refinance your home for an amount greater than the remaining balance of your mortgage.

This mortgage refinance index includes just some of the terms you will be encountering when refinancing. In case in doubt and you do not know the meaning of the terms the loan officer is using, it is wise to ask the person about it. Refinancing is a serious matter that involves money and your future, don't hesitate to ask!

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