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Credit Tips for Mortgage Refinancing

Low interest rates make mortgage refinancing appealing. Do you know how to get the best deal? Mortgage refinancing can be a tricky decision. While the financial benefits of dropping your interest rates a few points are apparent, the path to mortgage refinancing can be strewn with unexpected fees and potentially costly choices. The best way to really profit from mortgage refinancing is to carefully evaluate your plans and options before signing on the dotted line.

There are three main reasons why most people would want to investigate mortgage refinancing. The first is to cut costs by lowering your loan's interest rate. The second is to choose a different type of loan that better suits your financial goals. And the third is to cash out your home equity. When interest rates are low, a popular reason to refinance is to replace an existing mortgage with a lower interest rate. Here are some tips about mortgage refinancing:

Do the math

Determining the costs and benefits is often the hardest part of the mortgage refinancing process. You can estimate how long it will take you to break even after a refinance by dividing the refinancing cost (including points, insurance and pre-payment penalties) by your estimated monthly savings with the new loan. If you plan to stay in your home longer than the amount of time it will take you to break even, then mortgage refinancing may be a good idea.

Explore your options

Mortgage refinancing works for a lot of people, but not for everyone. Evaluate your goals and your current situation. If you owe more than your home is worth, you may need to come up with a cash payment in order to refinance. If you are planning on selling your home within a year, it makes more sense to hang on to your current mortgage. You may be able to negotiate a term extension with a lender if you have a large balloon payment approaching. If the fickle monthly bills caused by your adjustable rate mortgage stress you out, you may want to switch to a fixed rate loan.

Learn the business

Thinking like a lender will help you improve your chances of getting a good mortgage refinancing deal. Familiarize yourself with the lender industry and you'll feel more secure negotiating. The Mortgage Bankers Association of America has a wealth of information online at www.mbaa.org. Apply your knowledge by asking for a copy of your loan documents to take home and study.

Shop around

Despite the fact that you’ve had a loan with a lender before, your current lender may not have the best mortgage refinancing rates. Look around for the best offer, but be aware that some loans that sound too good to be true are too good to be true. Low points or interest rates may not be such a great deal when you add up all the extra costs. Mortgage refinancing is a big step, but with the right information, you could save thousands.
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