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Understanding Mortgage Refinancing

Refinancing is when a homeowner obtains a new mortgage to replace the original. Many lenders require you to stay locked in to the original loan for 12 months before you're eligible to refinance. Homeowners in Texas may choose to refinance for several reasons.

Refinancing may allow the borrower to receive improved interest terms and rates over their current mortgage. In this case, the first loan is paid off, allowing for the creation of a second loan. For borrowers with solid credit, this is a good way to transfer a variable loan rate over to a fixed rate, and secure a lower interest rate.

You can refinance to consolidate other debts into a single loan. This creates a longer payment term, but simplifies those bills into one payment. Another refinancing option reduces your monthly payment amount. This also extends the payment term, but provides short-term relief on the monthly expenses, and frees up cash. You can also use refinancing to cash out a portion of your home's equity. As a home increases in value, it becomes greater source for extra income. Cash-out mortgage refinance transactions may also be tax deductible.

Refinancing can come with a price. Most lenders apply an application fee (to cover the cost of processing and the credit check), along with charges for the title search and insurance, review fees for their attorney, and any points and fees incurred in the loan origination. Many fixed-term loans also have penalties attached to early repayment of the loan, along with transaction and closing fees.

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