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Mortgage refinance provides homeowners with the opportunity to reduce monthly mortgage payments or obtain cash using accrued equity from their home. Before refinancing mortgage notes it is important to understand the process and shop around for the lowest interest rates and closing costs.

Prior to scouting out mortgage refinance loans, borrowers should review their current mortgage note. The first thing to look for is a prepayment clause. Most home loans include prepayment penalties for paying loans off early. Homeowners with a first and second mortgage could be slapped with steep prepayment penalties; negating savings obtained through refinancing.

The second item to review is the current rate of interest. Financial experts' state homeowners should only engage in refinancing when interest rates are at least 2-percent less than the rate of the original loan.

Mortgage refinancing requires borrowers to obtain a new mortgage loan. This loan is used to pay off outstanding balances on first and second mortgages. Borrowers who have two or more mortgages can roll both loans into the refinanced loan if they meet lending criteria.

When borrowers refinance mortgages they must submit a new loan application. In most cases, homeowners are required to pay loan application, loan origination, and settlement fees. Closing costs typically range between 3- and 6-percent of the outstanding principal and interest.

Homeowners who have two or more mortgage notes might be surprised to learn they will be responsible for prepayment penalties of current loans and closing costs for the refinanced loan. These fees can amount to several thousand dollars.
Entering into mortgage refinance with reduced interest rates can ultimately save borrowers more than the fees associated with establishing a new loan. These fees will be recouped over time, but can be difficult to pay when originating the new home loan.

Some banks offer "no-cost" home mortgage loans. In reality, there is no such thing as no-cost loans. Instead of paying closing costs upfront, no-cost loans roll the fees into the loan. Borrowers pay interest on closing costs for the duration of the loan.

In most cases, mortgage finance extends terms of the loan. If borrowers have 15 years
remaining on their current loan and refinance for 30 years, they will be paying on their mortgage note for an additional 15 years. Therefore, it is crucial to calculate the costs of refinancing before entering into an agreement.

Many changes have occurred within the banking industry in recent years. Homeowners should take time to understand the pros and cons of mortgage refinance to determine if refinancing is in their best financial interest.

The Federal Reserve Board offers a consumer guide to refinancing via their website at
FederalReserve.gov. Mortgage refinancing worksheets, eligibility requirements, mortgage loan resources, and federal agency contacts are available at no charge.

The U.S. Department of Housing and Urban Development (HUD) offers a variety of mortgage refinance information and resources at hud.gov. Homeowners who hold FHA loans can obtain complimentary counseling through approved housing counselors to determine if refinancing is their best option.

Borrowers with FHA loans might qualify for mortgage refinance under the Federal Housing Authority's Streamline Refinancing program. Streamline allows borrowers in good standing to refinance mortgages without undergoing credit checks and income verification. Streamline Refinancing prohibits borrowers from obtaining cash and is intended for reducing mortgage payments.

As with all real estate transactions, mortgage refinance offers benefits and drawbacks. Borrowers should only refinance when they can obtain significantly reduced monthly payments. For most people, their home is the most valuable asset they own. Careful consideration should be given to mortgage refinance to ensure borrowers are not placing their home at risk for foreclosure.

Simon Volkov is a real estate investor who specializes in helping homeowners at risk. His areas of expertise include helping borrowers facing foreclosure and those who need to sell their house to satisfy a short sale agreement. Simon has been recognized as an industry leader in California real estate. He is currently interested in buying properties in Orange County, California as well as Arizona, Washington and Nevada.