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The Mortgage Note: Key To An Effective Refinance

The decision of when to refinance your existing mortgage can be difficult amidst an ocean of information that's readily available from your mortgage broker, mortgage servicing company or the internet. A mortgage broker may want you to refinance several times, under the promise of smaller monthly payments or more equity on your property. While you may receive these benefits when you refinance, it is important for you to consider the factors that influence your mortgage payment and consequently, the decision to proceed with a mortgage refinance plan.

Understanding your Promissory Note

An unfortunate reality that most mortgagors face is the fact that very few receive clear, detailed explanations of the terms of their mortgage or how it functions. As a mortgagor, it is vital that you read and understand your loan documents before you choose to refinance your mortgage:

The Mortgage Promissory Note is by far, the most important of all loan documents. It details the terms of payment, the interest rate, any changes in payment and importantly, pre-payment penalties.

• The interest rate on your mortgage determines the largest part of your monthly payment to the mortgage bank. Before you refinance, check if you hold a fixed-rate or variable-rate mortgage and whether or not your current interest rate is lower than the existing market rate. Some mortgages have an introductory discounted rate that stays in effect for the first three months of the loan and rises by 3-4% after this period. If your interest rate after the first year is 2% higher than the current refinance rate, you may want to consider refinancing your loan.

• A pre-payment penalty is an early closure free paid to the bank that is either a fixed sum or a percentage of the loan amount. Your note lists the terms that govern this pre-payment penalty.  If you have a few months left on your existing mortgage, it may not be economical to pay upwards of $300 when you refinance. A mortgage company may offer to pay this penalty for you, but you can be sure that it will be included in the refinancing fees charged by your new mortgage company.

• Typically, most mortgages amortize over time. This means that your initial monthly payments are almost entirely interest payments. Over the term of the loan, you begin to pay off the principal or loan amount. Some special mortgages alter this amortization and may result in higher payments. Check your note for any special clauses that indicate an increase in payment.

Aside from your mortgage Note, the Title Deed, Appraisal document and Escrow paperwork can give you a great deal of insight into the value and equity in your property. Some states charge higher interest rates, escrow and prepayment fees than others and your mortgage documents contain all the information you need to take a decision. If you still need help separating the information from mortgage jargon, your loan officer or mortgage specialist at the bank should be able to help.

A clear understanding of your mortgage note can help you refinance at a lower interest rate. So invest some time in reading your mortgage paperwork and empower yourself with the knowledge that could save you thousands of dollars.

by Benson Mortgage
in Mortgage