Does It Pay to Re-Finance?

This is a question many homeowners may have when they are considering re-financing their home. Unfortunately the answer to this question is a rather complex one and the answer is not always the same. There are some standard situations where a homeowner might investigate the possibility of re-financing. These situations include when interest rates drop, when the homeowner’s credit score improves and when the homeowner has a significant change in their financial situation. While a re-finance may not necessarily be warranted in all of these situations, it is certainly worth at least investigating.

Drops in the Interest Rate

Drops in interest rates often send homeowners scrambling to re-finance. However the homeowner should carefully consider the rate drop before making the decision to re-finance. It is important to note that a homeowner pays closing costs each time they re-finance. These closings costs may include application fees, origination fees, appraisal fees and a variety of other costs and may add up quite quickly. Due to this fee, each homeowner should carefully evaluate their financial situation to determine whether or not the re-financing will be worthwhile. In general the closing fees should not exceed the overall savings and the amount of time the homeowner is required to retain the property to recoup these costs should not be longer than the homeowner plans to retain the property.

Credit Score Improvements

When the homeowner’s credit scores improve, considering re-financing is warranted. Lenders are in the business of making money and are more likely to offer favorable rates to those with good credit than they are to offer these rates to those with poor credit. As a result those with poor credit are likely to be offered terms such as high interest rates or adjustable rate mortgages. Homeowners who are dealing with these circumstances may investigate re-financing as their credit improves. The good thing about credit scores is mistakes and blemishes are eventually erased from the record. As a result, homeowners who make an honest effort to repair their credit by making payments in a timely fashion may find themselves in a position of improved credit in the future.

When credit scores are higher, lenders are willing to offer lower interest rates. For this reason homeowners should consider the option or re-financing when their credit score begins to show marked improvement. During this process the homeowner can determine whether or not re-financing under these conditions is worthwhile.

Changed Financial Situations

Homeowners should also consider re-financing when there is a considerable change in their financial situation. This may include a large raise as well as the loss of a job or a change in careers resulting in a considerable loss of pay. In either case, re-financing may be a viable solution. Homeowners who are making considerably more money might consider re-financing to pay off their debts earlier. Conversely, those who find themselves unable to fulfill their monthly financial obligations might turn to re-financing as a way of extending the debt which will lower the monthly payments. This may result in the homeowner paying more money in the long run because they are stretching their debt over a longer pay period but it might be necessary in times of need. In these cases a lower monthly payment may be worth paying more in the long run.

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If you are thinking of mortgage refinance to bail you out of your credit woes, take an honest look at your financial circumstance. Even if you qualify for a loan, there are factors you should carefully consider or you may risk your family’s future.

Can you afford the monthly rates?

Prospective borrowers are enticed to latch on to the mortgage refinance train because of the promise of low interest rates. Low interest rates are not always the best deals. There are also points to consider when signing up for years of payback, which is usually about 30 years.

Mortgage rates may vary depending on the mortgage term and the interest rates. If you go for a long term mortgage, which is 30 years, you will be paying $660 monthly compared to the monthly $1,162 for a shorter 15 year loan. But all these will depend on the lender and the prevailing market price.

The first question to ask is: how much loan can I afford? This is a realistic approach to self-assessment. If you are earning a minimal annual income of $22,000, you can qualify for a 30-year loan that requires a monthly payment of $454 or an interest rate of 4%.

The higher the income bracket, the bigger the loan amount allowed. These ratios provide lenders a better idea of how borrowers will perform, aside from reviewing credit scores and assessing your present debts and the house to be refinanced.

Is your credit performance good?

The second question is your credit performance. If this is good, your chances for a loan approval are high, but this should be coupled with sufficient income.

Should you go for fixed or adjustable rate?

The third question: should you go for fixed or adjustable rates? A fixed rate offers stability throughout the mortgage refinance loan life. If you are going to stay in the house for more than five years, this is the best option.

If you expect to reside in the new house for only five years, the ARM is recommended, although there is the risk of higher mortgage payment when the ARM resets or fluctuates to higher rates.

The attractive low ARM rates is inducement enough. But when the rates increase, will your income increase? Aye, there’s the rub.

Short term or long term

Sure, you get a lower interest rate for a 30 year loan term. But that is paying an extra decade of interests. But you can also make an extra payment per year to shorten the loan term.

The shorter term will have higher monthly payment for the principal is increased but then the interest rates are lowered. You save more money and release yourself from an obligation of another 15 years of your mortgage refinance loan.

Are there other fees?

As a borrower, try to avoid excessive fees charged by lenders in the form of mortgage origination fee, appraisal fee, inspection fee, credit report fee, mortgage insurance fee, and underwriting fees. Know that these can be negotiated because lenders know they have competition.

Regarding title charges, check if the attorney’s fees are already incorporated into the closing costs of the mortgage agreement. Knowing these will help you determine how much more you are going to spend.

Don’t be intimidated when lenders start charging fees. Demand to know if these fees can be negotiated. Remember that you are the borrower and the one paying the mortgage refinance loan for a number of years.

Need pay your debts or buying a new home? Go for a mortgage refinance. Visit www.whataboutloans.com for the best deals in mortgage refinancing loans. Know more about home loan loan refinance for your advantage.
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Refinancing a mortgage is in some ways similar to getting your first mortgage, with a few important differences. Since you already own the home, you don’t have to go through a pre-approvals process or find a realtor and a home to buy. Unfortunately, you’ll still have a lot of paperwork to do, but savings thousands of dollars over the life of the loan is worth it.

There are very specific steps you should take to have a successful mortgage refinance

Step 1: Determine if Refinancing is Right for You

There are tools like mortgage calculators to determine whether a mortgage refinance loan will save you money. Factor in your current interest rate, future interest rate if you have an adjustable loan, and closing costs. If you want to take cash out, include that amount in your new mortgage balance for the calculations.

Remember, refinancing creates a new loan, usually with a full loan term. If possible, you can make extra payments to finish the loan at the same time as your original loan, and that will save you more money than the calculator predicts. For the calculation, assume you’ll only be able to pay the amount due.

Step 2: Check Your Credit Reports and Scores

Even if you already own a home, your lender will still use your credit scores and credit reports to determine which rate you qualify for. Order scores and reports for each spouse if both of you will be on the mortgage. You want to get best rate possible. Ideally your scores should be above 720 to get the absolute best rate, but 680-700 will get you a good rate. You can still refinance if your scores are low, but it might cost you more, especially if your scores were high when you got the first mortgage. Carefully review your credit reports for errors. 80% of all reports have errors. Common errors include listing accounts that don’t belong to you, late payments that weren’t really late, and items that were supposed to be removed. Follow the instructions at each credit agency to correct the errors.

Next, do what you can to fix black marks like recent defaulted loans, recent collections, and high credit card balances. You may have to spend a little more money to accomplish this, but it’s worth it if it saves interest on your mortgage, which will ultimately cost you more over 30 years.

Step 3: Research Rates, Fees, and Lenders

Before you contact any lenders, research current interest rates and fees for the type of loan you’re interested in. Comparison shop to see which banks is offering the best rates. Note the terms, closing costs, and whether or not the rates are fixed or adjustable.

In addition to rates and fees, check reviews of the lender online and at the Better Business Bureau. If the lender has a history of making late property tax or insurance payments or providing poor customer service, find a different lender.

Step 4: Contact Your Current Mortgage Servicer

Your current lender wants to keep you as a customer. If they still own the loan, they may be able to modify your current loan to a lower rate with just a little paperwork and a low fee. Unfortunately, most lenders sell their loans to larger mortgage servicers, so it’s unlikely that you’ll be able to take advantage of this. If you want to pull cash out, refinancing is the only option.

If you can’t modify your loan, your lender or mortgage servicer may offer a streamlined refinance. You’ll get a new loan at a better rate, but with fewer fees and a little less paperwork. It may also take less time to close. Of course, you may not want to accept their offer if the rate is higher than what you found at other lenders. Consider the closing costs when deciding which mortgage refinance loan will save you more money. Using your current lender could save on closing costs, but a higher rate could cancel out the savings. If you found a better rate elsewhere, ask your current lender to match it. If they want to keep you, they might do it.

Step 5: Contact Other Lenders

If your current lender can’t get you the best refinance rate, contact other lenders about refinancing with them. Your goal is to find the best rates with the lowest fees and closing costs (without adding those fees to your loan balance). Some lenders now offer refinance loans with 25 and 20-year terms so your new loan will end at the same time as your original loan. If it will save you money and you can afford the payments, consider the offer.

Refinancing to a lower rate can save you a lot of money over the life of the loan. A mortgage refinance loan can also help you get much-needed cash to remodel your home or pay down credit card debt. It’s not hassle-free, but saving money is worth the effort.

For more articles on mortgage refinance visit http://www.bills.com/mortgage-refinance-loan/

Justin has 5 years experience as a financial adviser, his key areas are
loan consolidation, debt relief, mortgages etc. For more free articles and advice visit http://www.Bills.com.
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