Mortgage Refinance
Understanding Mortgage Refinance Loans
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 do not have to go through a pre-approval process, or find a realtor and a home to purchase. Unfortunately, the you still have a lot of paperwork to do, but saving thousands of dollars over the life of the loan is worth it.
There are very specific steps you must take to have a successful mortgage refinance
Step 1: Determine whether refinancing is right for you
There is tools like mortgage calculators to determine whether a mortgage refinance loan will save you money. Factor in the current interest rates, future interest rate if you have an adjustable loans and closing costs. If you want to take cash out, include this amount in your new mortgage balance for the calculations.
Remember refinancing creates a new loan, usually with a full maturity. If possible, you can make extra payments to finish the loan at the same time as your original loans, and it will save you more money than the calculator predicts. The calculation assumes that you only pay the amount due.
Step 2: Check your Credit Reports and Scores
Even if you already own a home, your lender still use your credit score 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 score must be over 720 to get the absolute best rate, but the 680-700 will get you a good rate. You can still refinance if your score is low but it can cost you more, especially if your score was high, when you got the first mortgage. Carefully review your credit reports for errors. 80% of all reports have errors. Common errors include listing items that are not yours, late payments that were not really late, and topics that should be removed. Follow the instructions on each institution to correct errors.
Then do what you can to make black marks like the latest bad loans, the latest collections and high credit card balances. You may need a little more money to do this, but it is worth it if it saves interest on your mortgage, which will ultimately cost you more than 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 are interested in. Comparison shop to see which banks offer the best prices. Note the terms, closing costs, and whether rates are fixed or adjustable.
In addition to prices and fees, see reviews of lenders online and know better Business Bureau. If the lender has a history making late property tax or insurance payments or provide bad customer service, find another lender.
Step 4: Contact your current mortgage service
Your current lender wants to keep you as a customer. If they still own the loan, they can be able to modify your current loan for a lower rate with just a little bit of paperwork and a low price. Unfortunately, most lenders sell their loans to large mortgage servicing, so it is unlikely that you could benefit from this. If you want to pull cash out, refinancing is the only option.
If you can not modify your loan, your lender or mortgage servicer can offer a streamlined refinance. You get a new loan with a better price but with fewer fees and a little less paperwork. It may also take less time to close. Of course, you might not want to accept their offer if the rate is higher than what you found at other lenders. Consider closing costs when deciding which mortgage refinance loan will save you more money. Use your current lender could save on closing costs but a higher rate would cancel the savings. If you have found a better price somewhere else, ask your current lender to match it. If they want to stay, they could do it.
Step 5: Contact other lenders
If your current lender can not get you best refinance rate, contact other lenders to refinance with them. Your goal is to find the best prices with the lowest fees and closing costs (without adding these fees to your loan balance). Some lenders now offer refinance loans with 25 and 20 year periods, 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 may save you a lot of money over the life of the loan. A mortgage refinance loan can also help you to get the much needed cash to convert your home or pay off credit card debt. It is not without problems, but saving money is worthwhile.
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About the Author
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.