Common Terms Used in the Refinancing Process

So, you have decided that the time is right to refinance that mortgage for something better and slightly more affordable. You need some extra cash each month. Who doesn’t? You believe that refinancing is the perfect way to get a few hundred to put into savings, towards college, back into your home (that kitchen does not enjoy that lime green paint job anymore), or whatever else it is that you feel would benefit the most from the money. If that is not the case, then maybe you are after greater equity in your home or simply found that your better credit score can get you a better deal. Whatever the reason, refinancing is becoming increasingly popular for home owners.

Before you step into that lender's office or bank where you took out a mortgage, you would be wise to do some research. You may know a bit about mortgages from your first experience, but how well did that go if you are looking to refinance? A little research can go a long way especially since mortgages seem to be written in a completely different language then the one you grew up with. The terms and phrases used, often communicate extremely important information that should not be missed the first time. Knowing at least some of the lingo will help boost your confidence when staring across the desk at the person who will determine your new mortgage.

Let us first look at the two types of mortgages that you will be dealing with in your refinancing process; fixed rate mortgage and adjustable rate mortgage.

The fixed rate mortgage is pretty much what it sounds like. The rate of the monthly fee will remain the same throughout the length of the mortgage whether or not the national interest rates increase or decrease. Such a rate is generally a good idea for those who plan on owning the home for an extended period of time, because it gives you a sense of stability.

The adjustable rate mortgage is pretty much the opposite of the fixed rate. The rate will fluctuate given a certain indicator such as the prime interest rate. The benefit of such a rate is the low rate of the loan for the first few years. However, this type of rate can prove to be problematic as it is generally unpredictable.

The Annual Percentage Rate, commonly referred to as an APR is a rather important number that lenders tend to calculate differently. Generally, the APR gives you the actual yearly interest rate. However, since APRs can vary you should shop around before settling on a lending office.

Closing cost is an important number when thinking about a mortgage whether a first time or for a refinance. The closing cost is the amount that it takes to complete the transaction of purchasing the house or what it will take to refinance. The closing cost and the amount of time it will take to pay it off is an important consideration when deciding to refinance.

Of course, there are a ton of more specialized jargon and lingo used in the industry of mortgages and refinancing. However, knowing at least a portion of the common phrases and terms used will empower you to walk confidently into that lender's office and receive the best deal possible.