A remortgage, or mortgage refinancing, is the process of repaying one mortgage with the proceeds from a new mortgage using the same property as security, according to USA.gov. A feasible alternative could also be to combine both a primary mortgage and a second mortgage into a new loan, as indicated by the Federal Reserve.
Among the reasons that underlie a decision to refinance a mortgage loan are the increase, or fall, of the interest rates, the improvement of the credit score of the borrower, or the intention of the borrower to switch to a different type of mortgage, as pointed out by the Federal Reserve.
A rate-and-term refinancing would cause the remaining balance of the outstanding loan to be refinanced for a lower interest rate, with a different maturity, while under a cash-out refinancing, the bank would grant a new mortgage loan for an amount higher than the amount of the original mortgage, according to Bankrate.
However, refinancing a mortgage loan is not a simple process, considering the number of stages and activities involved, cautions the Federal Reserve. Those include the credit report checks which the new lender must conduct, the valuation of the property carried out by an appraiser, and the surveys and inspections regarding the location and structural condition of the property, as indicated by the Federal Reserve. Those activities attract various expenses, such as valuation fees, appraisal fees, inspection fees and survey fees. Those costs are in addition to prepayment penalties, which may range from one to six months of interest payments.