Loan intermediaries

WHAT IS A DEED OF TRUST?

With all of the other pieces that make up the very complicated puzzle that is a typical mortgage loan, you may not pay attention when something like a deed of trust is mentioned. “What is it?” you might be asking.

Basically, a deed of trust is the legal document that is recorded in public records which identifies the loan and provides security for it.

The typical deed of trust includes three parties:

• The Trustor, which is you, the borrower

• The Trustee, which is an entity that holds “legal” title

• The Beneficiary, which is the lender

This deed of trust serves some very valuable functions. Specially, it is used identify the following:

• The original loan amount

• Any legal descriptions of the property being used as security for the mortgage

• The parties

• Inception and maturity date of the loan

• Provisions of the mortgage and requirements

• Any applicable late fees

• Legal procedures

• Acceleration and alienation clauses

• Information regarding such clauses as prepayment penalties, or terms of an adjustable rate mortgage

BENEFITS OF HOME REFINANCING

Perhaps one of the most appealing benefits to home refinancing is the fact that it will free up more of your money to be used elsewhere. This is probably followed by the realization that your monthly payments will be lower as a consequence. These two factors are what prompt many homeowners to refinance their mortgage. Obviously, your home will be the largest asset you will probably own in your lifetime. The same is true of the payment you have to make each month. It is single largest payment that cuts deeply into your financial budget.

LOWER REFINANCE RATE EQUALS LOWER PAYMENTS

At the time you originally purchased your home, you may have had some understanding of how the financial markets determined the interest rates. Factors like your credit rating and the amount of money you put down as a down payment both heavily influenced the interest rate. More than these, the most important influence were the prevailing rates of the moment. Yet, interest rates fluctuate. The prevailing rates are moved by factors like the Federal Reserve or the stock market. When you enter a period where the rates are cut, you may see prevailing rates that are lower than they were when you bought your house.

When these periods come about, it presents the opportunity to refinance your current mortgage at these lower rates. You can effectively exchange your higher rate for the lower one. This will mean lower monthly payments, since the level of interest per payment has changed.

SHORTEN MORTGAGE LENGTH

Another benefit of home refinancing is that you will be able to shorten your mortgage length. For example, if you currently have a 30-year mortgage and you’ve been paying for a number of years, you will be able to cut down the term length to a 10, 15, or 20-year mortgage. The benefit becomes obvious when you realize how much money in interest you will be able to save. It could mean thousands of dollars of potential savings. If you have a lower rate after refinancing, but you decide to keep your payments the same each month, you will actually be able to build your equity much faster, since more of each payment will be put towards the principal of your loan.

CHANGE MORTGAGE TYPE: ADJUSTABLE RATE OR FIXED REFINANCE RATE

Another benefit to mortgage refinancing is that you will be able change your mortgage from an adjustable-rate to a fixed-rated if that is more advantageous as the markets fluctuate. Most of those people who went with an ARM did so because they were not sure if they were staying in one place long-term, or their finances were subject to change. Yet, if you find yourself in a position to stay put for a long time, the benefits of a fixed-rate mortgage are probably pretty clear. With the fixed-rate mortgage, you will have more security knowing that your monthly payment will remain steady, no matter what the current state of the market is.

OBTAIN EXTRA CASH THROUGH CASH-OUT REFINANCING

Cash-out refinancing is a means of using the equity that has been established on your home to obtain a certain amount of money to use for other purposes. Basically, you can refinance for an amount higher than your current principal balance, and get the extra fund in cash form. You might want to use this to do home improvements, pay offer high-interest debts, or pad your savings for the future.

ELIMINATE PRIVATE MORTGAGE INSURANCE

If you choose to refinance, you will not have to retain your private mortgage insurance (PMI). This was necessary in the beginning if you did not have enough saved to pay twenty percent as a down payment in order to protect the lender in case you defaulted on the loan. When you refinance, you are eliminating the need to have this coverage since the payments are different and the interest rates have been lowered.

MORTGAGE REFINANCING

Refinancing is the process where you apply for a secured loan, for the purposes of paying off a separate loan which was secured against the same assets, property etc. More specifically, if the original loan you have has a declined fixed-interest rate, you could obtain a new loan to get a better interest rate, and potentially change your payment level as well.

Generally, you should pursue home refinancing when you have an existing mortgage you wish to pay off and are applying for a secondary loan to accomplish this. As you consider your options to deal with your current mortgage, you should determine whether refinancing would be a feasible and rewarding option. It comes down to comparing the amount saved on interest against the amount of fees you will pay to refinance.