Things to Remember Before Refinancing a Mortgage

Things to Remember Before Refinancing a Mortgage- 150x150The option of refinancing a home mortgage requires serious analysis. It is a financial mechanism that allows a homeowner to pay off their existing or original home loan by renegotiating a new mortgage with better terms, ultimately providing budget-saving benefits. It can potentially allow a homeowner to save significant amounts of money in interest payments over the long-haul, or it can boost the equity time-table as well. The refinancing option can also be less than favorable if it is not approached with a good plan and sound motivations for doing so before signing the bottom line.

Evaluate All Costs

While most lenders would be happy to discuss refinancing, there are costs involved that might not be presented as clearly as they should be in the initial discussions. It is advisable to request a complete list of all costs and fees, especially hidden ‘third party’ or ‘padded’ fees for services. In addition, there may be prepayment penalties on the original mortgage that can be quite steep, but must be factored in. These costs could negate the refinancing benefits.

Switching Loan Types

The primary motivation for refinancing is usually the interest rates applied to the original loan. If the original loan was an adjustable rate loan type (ARM), the best advice is to switch to a fixed rate mortgage to stabilize the monthly payment. At the very least, the previous ARM interest rate was set higher than the current mortgage rates, so renegotiating for a lower rate with either loan type is usually advantageous.

Seek Multiple Loan Offers

The best advice is to shop around for the best available offers, either from local lending sources or those found online. Refinancing can be expensive if it is not researched adequately. However, there are often many fees in the lending and closing process that can be negotiable and the competition for business in the current market is in the borrower’s favor. While the lenders are out to make a profit, the goal in mortgage refinancing is to make owning a home more cost-effective for the homeowner.

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