Mortgage Refinancing During Hard Times | Luxury Home Jumbo ...

Article by Mr. Johnson

In times of economic and financial distress, ordinary consumers are frightened by the prospect of disaster and seek safety from the effects of failed ventures. This climate results in widespread fear concerning the financial situation, which can lead to borrowers seeking to make their terms more favorable to them. Naturally, lenders seek the same, and this can lead to a general breakdown of financial conditions.

This is intolerable both to ordinary consumers and to the officials responsible for ensuring financial stability. The individual markets themselves are frequently more irrational than usual in these circumstances. Take the real estate market, for example. It is currently undergoing a massive de-leveraging, which has not shown any signs of improving. Real estate prices continue to fall and the government tax credit stimulus did not halt the downward trend.

Borrowers who had taken on mortgage debt find themselves in a delicate situation, to say the least. On the one hand, they must continue to repay their mortgage. On the other, continuing to repay their mortgage means putting strain on their other finances. For borrowers who also have consumer debt such as credit card debt, the situation appears particularly unmanageable. Fortunately, there are options still available to borrowers who are looking to ease the burden: mortgage refinancing.

Refinancing means canceling the old mortgage loan and subsuming it in a new loan. This new loan can be very different from the old loan, especially in terms of duration. Mortgage refinancing allows the borrower to set completely new terms, such as a lower interest rate or shorter repayment period. For example, a thirty-year fixed-rate mortgage can be refinanced into a fifteen-year fixed-rate mortgage.

A shorter repayment period means a higher monthly payment, but the upside is that the total interest payment load is greatly reduced, sometimes by as much as 0,000 or more. The one downside to refinancing is that it resets the amortization period, in the beginning of which the borrower pays primarily the interest on the loan and does not start paying the principal until later. Thus, if the borrower refinances when they are well into the repayment period, they may end up paying more than they originally needed.

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