What Are The Refinancing Procedures For a Mortgage?
If you are considering refinancing your mortgage, then it is important to know refinancing procedures before you take the plunge. Your home is important to both you and your family, and you do not want to take any unnecessary chances with it. Make sure you understand your personal financial situation and how to get the best mortgage refinance for it. Learn more about how to start the process.
Understand Refinancing and Your Financial Situation
Before you refinance, you need to make a clear assessment of your financial situation and your current mortgage, and figure out if refinancing is truly beneficial. You will need to know the following: your current mortgage balance, interest rate, monthly payment, loan terms, value of your house, monthly household income, balances on other debts and preferably, your credit score (or a close guess).
What Refinancing Can Do for You
Refinancing has many advantages and it is important to understand what exactly it can do for you. Some people do it because they have an ARM (adjustable rate mortgage) and they are nervous about future hikes in their rate. They choose to refinance to lock in that fixed rate that will not ever surprise them with an increase in their monthly payment. Another popular reason for refinancing is to lower the interest rate on the mortgage, which in turn will lower the monthly payment. Both of the above options not only help people save money on their mortgage, but can also help people avoid future financial problems.
Your Reason for Refinancing
If you are going to refinance, you need to decide what the benefit is to your financial situation. If one of the following applies to you, then it might be a good option for you. If not, you want to think about why you feel you need to refinance.
- Cashing Out — Refinancing is one way to get cash for things like home improvements and consolidating debts, but not a smart choice if you are just looking to buy something you otherwise could not afford (i.e., a new sports car).
- Saving Money — If you are in good financial standing, a mortgage refinance can still lower your monthly payments and save you money.
- Avoiding Foreclosure — One of the more drastic reasons that people refinance is because they are facing foreclosure. Refinancing gives them the opportunity to lower monthly payments and save their home.
What to Consider when Refinancing
All of the reasons to refinance your home loan may sound great, but you do need to take into consideration your current home, your mortgage, and whether or not a mortgage refinance really saves you money. If the interest rate you get on a new loan is not that much less (rule of thumb — less than 1% difference) than the one you have, you may not save any money at all. You need to take into account the fact that there will be fees of thousands of dollars with your new loan and that will counterbalance the effects of a lower rate. Also, if you plan on selling your house within in the next year, then a refinance might not be beneficial either, because you may not actually save money until after you have the loan for several months.
Contacting Lenders for Refinancing
When you decide to move forward with a refinance, next on your list of procedures is to check with your current lender and see what kind of rates and terms they can offer to you. If they sound reasonable, then your next step is to check into other lenders' rates and terms. If your plan for refinancing is to save money, then make sure you are getting the best possible deal. Once you decide on a lender and a mortgage, make sure you read all of the fine print on the loan. Last but not least, before you sign on the dotted line, check the fine print on your current loan and see if there are any fees for paying off your mortgage early (known as a prepayment penalty). If there are, you need to factor those into your total costs for refinancing.
If it all looks good, then your last step is to get the paperwork started on your refinance. As long as you know what you are getting into before your finalize the deal, then your mortgage refinance should go smoothly and save you money.
Get up to 5 competing mortgage quotes