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Many people will take whatever mortgage they can get when trying to purchase a home. Sooner or later, you will start wondering if you can get a better deal. Welcome to the world of refinance.

Reasons to Refinance Your Home

Traditional mortgages are like any other loan in one important respect. You can pay them off early, although mortgages will sometimes have prepayment penalties for the first few years of the loan. In the world of real estate, people prepay loans all the time by taking a second loan to do so, better known as refinancing. Why would someone do this? There are a variety of reasons, but here are the most common.

Purchasing a home can be a bit stressful. Between home inspections and the escrow deadline, buyers tend to feel pressure to get any financing they can. As time passes, however, they start to realize they could have obtained a better deal on their mortgage. Even a quarter point reduction in a mortgage interest rate can save thousands of dollars over the life of the loan. With this in mind, they start to look at refinancing their original mortgage to cut down on the total interest paid on the loan.

In tune with this idea, many homeowners also look to refinance to gain cash flow flexibility. Instead of looking to cut the total payments on a loan, they look to find terms that will allow them to lower the amount of the monthly payment. Saving $400 a month on payments puts an additional $4,800 in your pocket each year, which can be attractive if cash flow is a little tight on a monthly basis.

On the opposite end of the scale, many homeowners will refinance to pull cash out of the home. They have built up equity over time and wish to convert that non-liquid asset into funds that can be used for something else. Often, this can be to pay for expenses associated with an emergency situation, such as a health crisis, or to put their kids through college. The reasons vary, but the purpose is the same.

The decision to refinance a mortgage is much less stressful than originating a loan. There is no deadline to act, so you can shop for the best possible deal for your situation.

Sergio Haros is with Great Western Mortgage - San Diego home loans provided by San Diego Mortgage Brokers. Great Western Mortgage is a San Diego mortgage company providing San Diego mortgages, San Diego home equity loan and San Diego mortgage solutions.

If youre in the market to refinance your home mortgage loan, learning the lingo can boost your confidence and prevent loan officers from taking advantage of you. Learning mortgage terminology is a lot like eating your spinach; however, here are basic terms you need to learn before shopping for a new home loan.

Adjustable Rate Mortgages

Mortgage loans with interest rates that change periodically are called Adjustable Rate Mortgages and are frequently abbreviated APR. The interest rate is tied to a certain financial index like the prime rate or treasury index. These loans typically come with an ultra low introductory or teaser interest rate; however, at the end of the introductory period the interest rate is reset to the contract mortgage rate.

Annual Percentage Rate (APR)

The APR is a numeric representation of all costs associated with a mortgage offer expressed as a yearly interest rate. Mortgage lenders all have different ways of calculating the Annual Percentage Rate and it usually does not accurately represent third party charges. Youre much better off requesting a Good Faith Estimate when comparison shopping instead of relying on the APR.

Fixed Rate Mortgage Loan

Home loans that have an interest rate set at closing that does not change for the duration of the mortgages term length are fixed rate mortgages.

Good Faith Estimate (GFE)

Mortgage lenders are required by law to provide you with a copy of this document within three days of receiving your application; however, most mortgage companies will provide you one on request. The GFE outlines all estimated costs associated with your loan and is a useful tool for comparing loan offers.

Loan to Value Ratio (LTV)

Your Loan to Value Ratio is the derived from the appraised value of your home and how much youre borrowing. This ratio is typically expressed as a percentage and most lenders do not like LTV ratios higher than 80%. High LTV ratios can lead to Private Mortgage Insurance, which is something you want to avoid paying at all cost.

Points (Discount & Origination)

Points come in two flavors. There are discount points you pay in exchange for something like a lower interest rate or more favorable terms and origination points you pay for your loan representatives services. One point is the equivalent of one percent of your mortgage amount. Unless you plan on keeping your mortgage for a very long time it is usually not worthwhile paying points if you can avoid them.

Term Length

The term you choose is the amount of time you have to repay the loan. The most common choices for term length are 15 or 30 years. The longer term length you choose the lower your payment will be; however, you will pay much more to the lender for your financing.

Third Party Settlement Charges

These are fees that you will be required to pay at closing that appear on your Good Faith Estimate. Mortgage companies frequently low-ball these costs to make their loan offer appear more attractive. Always compare line-by-line using the Good Faith Estimate when comparison shopping for a new mortgage.

You can learn more about refinancing your mortgage without being taken advantage of with a free mortgage tutorial.

To get your FREE six-part Mortgage Refinancing Tutorial, visit RefiAdvisor.com using the link below.

Louie Latour specializes in showing homeowners how to avoid costly mortgage mistakes and predatory lenders. To get your hands on this free video tutorial: "Refinance Mortgage - What You Need to Know," which teaches strategies for finding the best mortgage and saving thousands of dollars in the process, visit Refiadvisor.com.

Get your free mortgage refinancing tutorial today at: http://www.refiadvisor.com

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