Conditions are continually changing to make us think that the home loan we have is the worst one in the world, and we should be considering at a different loan.

Yes, as times change, we should consider a new loan, but make sure you look at all of the factors before you make a new commitment for 5, 15 or 30 years.

If done in a timely manner, refinancing can have many benefits. Depending on the terms (rates and maturity), a new home loan financing can allow you to lower your monthly mortgage payments and pay the loan off earlier.

The main point, however, is one of total costs of refinancing should not outweigh the total savings of refinancing.

If you are able to go from a fixed to a variable rate mortgage, you may save money because you can lock in a rate and not be exposed to the risk of constantly escalating interest rates.

Another good reason to think about re-financing is if your credit score has improved and you would be offered better interest rates and terms at this point.

If you do have a high interest rate loan, it pays to watch the rates to see if you can bring your rate down.

Sometimes, you may not have a choice in the issue, and you have to arrange a new mortgage because your original mortgage was a balloon mortgage that has now become due. At this time, you should take advantage of any of the above conditions and use them to your advantage.

An improved credit situation will automatically qualify you for more advantageous rates and even a longer maturity. If you have become tired of refinancing every five years, this will be a big relief.

If you had a poor credit rating in the past, you may have purchase mortgage insurance, and you may be able to eliminate this if you refinance under these new conditions.

But the most important factor in this choice will still be the costs involved, since if you have to pay too much in re-financing costs, you can wipe out any savings in interest rates.

If the total savings on your current loan do not equal or exceed the closing costs, the re-financing deal is not worth while. And you may want to reconsider if it barely covers the cost, since you are going to be putting a lot of time and energy into the refinancing.

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Of all of the things you will have to understand about your new mortgage, one of the most confusing may be points. Don’t get origination points (to pay to get the loan) mixed up with discount points (to lower the rate on the loan).

This second kind of points so-called “discount points” because they lower the rate on your loan. That rate is calculated by the lender based on your credit rating, among other factors. What is important to know is whether it is worth paying the extra points to lower the interest rate on the entire loan.

Banks set a rate of return they expect to receive on their investments. If a mortgage has other factors that may reduce their return, they have to increase the rate to make up for it. But if they can receive more upfront, they will consider lowering the rate on the loan. Is it worth it for you?

The first thing you should check out is whether the seller is willing to pay points, which often happens in a competitive market.

Let’s say your mortgage is $100,000 and you are offered a mortgage rate of 6%. But you are also offered the option of paying points.

On a 30 year mortgage, two points will reduce the mortgage to 5.5%. Not significant, but how much difference does that make in the long run? The cost of 2 points on a mortgage of $100,000 is $2,000. What will be the savings over the life of the loan?

You can easily find a calculator on the web that can figure out the savings for you.

Let’s say you pick the option of paying 2 points at a cost of $2,000 to reduce your loan rate to 5.5%. Interest: $104,404.04 Total Payments: $204,404.04 Mortgage Payment: $567.79.

Your monthly payment would be $31.76 less each month, and the total repayment amount would be $11,434.15 less. This is the reason many people choose to pay points on their mortgages.

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The concept of a reverse mortgage sounds interesting, but there are many parts to it that most people do not understand. It is critical to understand the advantages and disadvantages of the use of a reverse mortgage.

The first question for the borrower is What is a Reverse Mortgage? This type of mortgage, developed by the U.S. Department of Housing and Urban Development is one that allows homeowners over 62 years of age who reside in the home to convert some of the equity in their homes to cash. What follows is that the equity in the home is converted to cash for the owners. The difference is that no repayment is required until the house is no longer the primary residence-as a rule when the home is sold.

Unlike a mortgage with a monthly payment, the reverse mortgage is paid from the proceeds of the sale. Of course, only the amount between what is currently owed on the house and the market value can be borrowed.

This is a plan that lets older homeowners remain in their house by taking an advance on its value. Most older people, without a job, would not qualify for a traditional mortgage.

But there are some caveats to be aware of with reverse mortgages.

An added expense that goes with reverse equity mortgages is non recourse insurance, which gives the bank a guarantee in case the funds distributed by the mortgage turns out to be higher than the sale price of the home. You also still have closing costs, but they are treated as additional draws and added to the debt.

This is why it is important to understand all of the costs involved in this type of loan. The homeowner needs to live in the home for quite a number years to make all of the additional costs of the mortgage worthwhile.

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The mortgage market is not a simple matter. With all of the choices available, it is difficult for a home buyer to choose the best loan.

Once you have a clear concept of the products that are offered, you can make a better decision about the right one for you.

One of the first decisions a borrower will face is whether he wants an ARM or a FRM. An FRM is a fixed rate home loan and an ARM is an adjustable rate home loan.

Even if you decide upon a FRM, you will have types within the category to choose.

If you choose an ARM, which kind of ARM is for you? There should almost be a college course in understanding all of the various kinds of ARMS.

You may be offered the choice of an interest only mortgage, where you only pay interest and no principal, but these are quickly disappearing from the market in tight credit situations.

And then you have to decide upon the rate and point combination you choose, since you can lower your overall rate by paying up front points. Calculating the value of the points over the length of the loan will help in this choice.

A similar decision making method applies to the size of your deposit. If you are fortunate enough to have ample funds for a down payment, should you put down as much as you can as a deposit, or will you be better off if you keep it lower and invest the balance?

Next, lenders will offer you a prepayment feature. If you feel you want the freedom to pay the mortgage off earlier, you may decide to choose this option.

What about a lock in rate? This can be a good idea, but if rates go down, you may be caught. If you lock in a rate and then rates come down, you may be burdened with an increased rate. There is usually a way to opt out of a lock in rate, but the bank will have a fee for this. Those who feel rates are on the rise, or those who simply don’t want to take chances on the interest rate market will typically opt for a lock in rate.

Before you start to shop for a mortgage, look into all of these options and have a good idea of which will work the best for your mortgage. Understanding what your bank is offering you will make a major difference in the mortgage you choose.

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