What is the True Cost of Refinancing? The Truth is Revealed Here!

What is the True Cost of Refinancing- The Truth is Revealed Here- 150x150Refinancing your home involves getting a new mortgage loan, and it’s a practice that can be very beneficial and save you a nice amount of money, or it can prove to be very expensive and cost you a lot of money. The main goal of refinancing is to save money on your mortgage by replacing your original mortgage loan with one that features a lower interest rate (Read: Major Motivations to Refinance a Mortgage).

Usually, refinancing costs the average home owner between 3 and 6 percent of the home loan’s value. For example, if you are refinancing a $200,000 home, refinancing will cost you between $6,000 and $12,000. Paying such a high price for refinancing should make you wonder if you should do it and get a new loan with a lower interest rate, or keep your old loan with the higher interest rate. The only way to find out if refinancing is worth the hassle and cost is by putting everything on paper and calculating if the lower interest rate of the new loan will bring greater savings than you will be spending on closing costs.

Closing Costs

All the fees associated with refinancing should be included in the Good Faith Estimate. This document will reveal how much your lender is charging you for each item. If you do your homework, you will be able to tell which fees are necessary and which ones are unnecessary and can be lowered or even waived by your lender.

Costs such as the origination fee or the lender fee are paid directly to the lender and can be easily negotiated, and sometimes even waived. The lending officer normally works on commission, and will prefer to lower these fees, than to lose a customer and get no commission at all.

When doing mortgage refinancing, you can purchase “points”, which will lower the interest rate on your mortgage. They are essentially a form of prepaid interest and each point is worth 1 percent of the loan amount. You should take into consideration the amount of time that you will be spending in the home and how long it takes you to break even on the cost when purchasing points.

Determining the True Cost of Refinancing

Lowering your interest is very attractive and the main reason why people refinance, but it’s not the only factor you should look at when deciding whether to refinance or not. The new lower interest rate should play a big part in your decision, but what you should really be looking at is whether the savings that you get from refinancing your mortgage are bigger than the cost of refinancing. Many times, borrowers will be blinded by the lower interest rates, and refinance without realizing that the high cost of refinancing will actually cause them to lose money.

In order to find out how long it will take you to start saving money after refinancing your mortgage, you should subtract your new monthly payment from your old monthly payment, and divide the cost of refinancing by the monthly savings. The number that will result from this will be the number of months it will take to break even. Refinancing if you plan on living in a home for longer than it will take you to break even is a great choice. Here are a few tips to help you understand how much will refinancing cost you and decide if it will save you money:

  • Find out what your new interest rate will be. Many times, lenders will only advertise the lowest interest rate that they can give, but that doesn’t mean you will qualify for it. Depending on your credit score and how many points you purchase, you can end up paying a much higher interest rate, which will make refinancing look less appealing than it did when it first crossed your mind to refinance.
  • Find out how much refinancing will cost you. You will, most likely, have to pay several good thousands in closing costs when refinancing, so finding out exactly how much this will cost you is a great way of determining if refinancing is a good choice. Mortgage application, origination, document preparation, appraisal, title and many other fees can add up and cost you an arm and a leg.
  • Decide if refinancing is worth the hassle. Besides the high closing cost, refinancing is also a time consuming process. Before talking to a lender, you should consult an online mortgage refinancing calculator. Online calculators won’t be 100 percent precise, but you should make sure that you provide the most accurate information when calculating your costs and savings.

Refinancing is a costly process, but you shouldn’t let that scare you. You should also not let the low interest rates advertised by

How is Your Mortgage Affecting Your Net Worth?

How is Your Mortgage Affecting Your Net Worth- 150x150Buying a home and becoming home owners is a dream come true for many people and families. But most of the time, making such an expensive process involves borrowing money. A mortgage loan is very beneficial, and will help you become the owner of a home, but it will also affect your net worth, especially if you are refinancing. Refinancing a mortgage is a good way of lowering your monthly mortgage payment, but before you consider refinancing, you should take a close look at what you are getting into and ask yourself if this is only a temporary solution or one that will actually save you money.

How to Determine if Mortgage Refinancing is Worth It

The most widely used method of determining if mortgage refinancing is a good choice for you is by calculating a payback period. This is done by finding out in which month the sum of the monthly savings made by refinancing will be larger than the overall cost of refinancing. If reaching that sum takes less time than the amount of time that you will be living in the home, then you can conclude that refinancing is a wise choice.

Another way in which you can determine if refinancing your mortgage makes sense is to compare the amortization schedule of the original mortgage loan against the amortization schedule of the new loan, while including the refinancing costs into the equation. Then, subtract the difference between the two monthly payments from the new loan’s principal. Find the month in which the principal of the new loan will be less than the principal of the original loan. That’s when the economical payback period will be reached.

Will Refinancing Lower Your Net Worth?

Home owners refinance in order to reduce their monthly mortgage payment and free up money for other purchases or investments. While refinancing offers great benefits, its long-term effect is that it will have an influence on your net worth. Mortgages are considered good debt, but the balance sheet doesn’t differentiate between good or bad debt. Refinancing could make repaying your debt take longer and take thousands of dollars from your net worth over time.

Refinancing without lowering your net worth can be done by keeping the amortization the same and continuing to make the same or even larger monthly payments.

Home refinancing is an expensive process that, if you are not being careful, will lower your net worth. Before refinancing, try to compare the cost of refinancing against your savings. That is the only way of finding what kind of an effect will refinancing have on your net worth.

Practical Advice on Refinancing Your Mortgage

Practical Advice for Mortgage Refinancing- 150x150Any approach to refinancing mortgages needs to be timely, sensible, rational, and most importantly, affordable. While refinancing can certainly create great savings benefits in the long run, it must still balance itself out against time, effort, and costs involved. This is especially true when the bottom line is weighed against the long-term financial goals and the short-term practicalities for maintaining a sound household budget.

Interest Rate Factors

There is no factor more important when making a refinancing decision than interest rates. The refinancing interest rate determines the economic feasibility of the entire process, especially over the length of the loan term. If the current mortgage rates are at least two percentage points below the existing mortgage rate, then refinancing may be well worth the trouble and short-term expense, and could save the homeowner thousands of dollars over the term of the mortgage.

Calculate Monthly Savings

Having a lower interest rate is the most important factor in making a refinancing decision because of its significant lowering effect on your monthly mortgage payments. By reducing monthly mortgage payments by just $200, refinancing can save a homeowner over $24,000 in the first decade of the new loan, adding considerable flexibility to budgets for other debt obligations.

Evaluate Up-Front Costs

Since the refinance option is in reality a completely new loan, there will be initial costs involved that are almost identical to the original loan process, from the loan origination fees all the way to the closing costs. In some cases, to minimize up-front expenses, the closing costs can be added into the loan itself, although interest rates will now be added to the closing costs. In other scenarios, if the lender for the original loan is willing to discuss the refinancing effort, there might be reduced or eliminated expenses during the new loan’s closing process. If a borrower’s financial condition is in good standing, and their credit rating remains high, there may be additional terms or conditions the lender may adjust more favorably, such as even lower rates and points, or be willing to negotiate closing fees.

Multiple Mortgage Refinancing

Multiple Mortgage Refinancing- 150x150With the economy showing signs of improvement, there are many homeowners wondering if they may have jumped the gun in terms of refinancing. Whether they opted to do so before the present decline in interest rates began, or are considering the feasibility now before the rates begin climbing again, it boils down to whether it makes sense financially to do so. While there is no limitation on how many times a homeowner may get a refinance loan, there are still some factors to consider that may tip the scales one way or the other. It also depends on finding a lender offering an affordable loan package, as well as meeting a new set of approval standards and mortgage loan credit requirements.

Factoring in Prepayment Fees

One major consideration is the possibility of a prepayment clause written into the original loan agreement. This stipulates that should the original mortgage be paid down before a specific date or time frame, a substantial amount of money must be paid to the lender as a penalty. These fees are generally based on a certain percentage of the original mortgage amount, and are put in place to ensure refinance lenders hold specific profit margins. The technique is designed to discourage a borrower from considering refinance options too often. If the original loan did not carry this penalty, it was more than likely offset by a higher interest rate applied.

Factoring in New Closing Costs

Should the borrower be fortunate enough to renegotiate the original mortgage with the same lender, there may be certain benefits to be had. Otherwise, the same expenditures will still apply to the new refinancing process, just as they were for the original loan. These costs include the origination, appraisal, title search, recording, and attorney fees. These closing costs can run from 3% to 5% of the total loan amount, which can become quite costly in terms of repetitive refinancing. However, if a borrower wants to do mortgage refinancing with no closing costs, it is possible to roll these closing costs into the loan itself, but interest will be added to this amount over the loan duration.

Documentation Required for Mortgage Refinancing

Documentation Required for Mortgage Refinancing-150x150Once the homeowner has investigated all of the available lending options and has selected the lending institution offering the most affordable refinancing options, all of the documents the lender will require need to be put together to start the refinance process. This will be the relevant information regarding not only the property to be refinanced, but all the documentation regarding the borrower’s financial circumstances as well. Some will come from the borrower’s own files and records, most pertaining to the existing mortgage, and the rest will be requested from various agencies by the lender with the borrower’s authorization.

Having all of the required documentation on hand prior to negotiating with a lender is necessary to move the entire refinancing process forward with minimum delay. Generally, most of this documentation is the same as what is provided at the time of the original mortgage loan application process, but if a certain amount of time has transpired since then, lenders will want to rebuild the application file from scratch in order to re-verify the information.

Assets, Income, and Employment Records

Every refinance lender will request income verification from the borrower in order to proceed. Such documents may include wage payment stubs going back a few months, W-2 forms and tax returns for the preceding two years, as well as employer references and contact information to verify employment and job stability for at least two years. If a borrower is self-employed, they will have to provide tax returns for the two preceding years, along with profit and loss statements.

Any other forms of income sources will also be needed for verification, including pension, dividends, rental income, as well as child support documentation and alimony. A borrower will also need to supply bank statements for any checking or savings accounts, IRAs and 401Ks, possibly even records for mutual funds, stocks, bonds and other securities. Borrowers in possession of substantial stock portfolios, savings or other investments present far less risk to the lender, indicating an ability to maintain mortgage payments if they are temporarily unemployed.

Homeowner Insurance Policy, Title, and Deed

In addition, the existing homeowner’s insurance documents will need to be brought in to verify that the existing policy is in effect and that there is adequate coverage on the residence. Along with this will be copies of the recorded deed on file, the abstract, the land survey, current title report, and the required title insurance documentation for the necessary legal descriptions of the property and its owners. Most of these documents will be readily available from the original loan provider, which can speed up the entire process should that same lender be considered for the new refinancing.

Liabilities and Credit History

Last but not least, the lender will request to gain access to the borrower’s credit reports via written authorization from the borrower. This will give the lender a complete credit history of payment records and total amount of liabilities the borrower has under current obligation, their credit scores, and to evaluate what type of refinancing program they are qualified to apply for. There are also certain lenders who provide a fast-tracked refinance process for borrowers with significant equity in their home and top-tier credit ratings.

New Appraisal

Because the original appraisal done on the existing property will have gone beyond the required 90 day time-frame to still be valid, some mortgage refinance requirements will stipulate that a new property appraisal needs to be performed in order to confirm the current market value of the property for the lender. This of course will establish the amount of funds the lender will endorse for approval. Generally, this appraisal is ordered by the lender through a contracted agency after the loan application has been submitted, and the expense is paid by the borrower when the appraisal is completed.

Whatever the financial necessities or motivations for seeking refinancing on an existing mortgage are, whether it be cutting the monthly expenditures, extending the loan term, changing the loan type, or just freeing up that equity, this information is a valuable tool for reaching that goal. Regardless of which lender is selected to begin the negotiations, the refinancing process can be expedited by putting together the necessary documentation beforehand. In the end, saving both time and money will be the most desirable outcome, for both the lender and the homeowner, if all the pieces of the refinancing puzzle are in the same box.

Guidelines to Mortgage Refinancing

refinancing guidelines-150x150Before a homeowner decides to commit to a mortgage refinancing offer, there are certain criteria to address. Generally, there is an economic motivation behind the decision, such as taking advantage of the current downward trend of interest rates, or switching to different types of mortgage loans, or perhaps getting access to the available cash tied up in home equity for financial reasons. Each motivation needs to be examined carefully, with not only short-term benefits evaluated, but long-term strategies kept in mind as well.

Refinancing Timetable – When is the best time?

There are two primary focus points to consider prior to moving forward with the refinancing procedure, even before the application process can take place. The first is checking interest rates offered at local lending institutions or online, bearing in mind that these rates will be offered to borrowers with the best credit ratings. The refinancing ‘rule of thumb’ is that current mortgage interest rates must be two or more percentage points below the rate applied to the existing mortgage, in order to be worth the refinancing effort.

The second issue is determining just how long a borrower plans to stay in the home after the refinancing takes place. This formula can be examined by taking the estimated cost of closing at $4,000, and dividing it by an estimated savings in monthly payments, say $100. In this case, it would take approximately 40 months, or 3.3 years, before breaking even with the initial costs of mortgage refinancing.

Budgetary Effect – What are the potential savings?

If lowering the monthly payment is the primary consideration, then refinancing with a lower interest rate is the obvious choice. If the current monthly mortgage payment on a $200,000 loan at 8% interest over 30 years is $1,468, the same loan at 6% would bring the monthly payment down to $1,199. Over ten years, the savings would be $32,280 added back into the household budget.

How to Refinance a VA Loan

Refinance VA Loan- 150-x150Since 1944, the U.S. Department of Veterans Affairs (VA) has helped more than 18 million American veterans become home owners. The loan, issued by a lender, is insured against default by the VA. They also dictate the requirements for those who can qualify and the terms of the mortgage. A VA loan offers benefits to active-duty military members, veterans, and surviving spouses. VA loans are generally used for a few purposes, such as buying or building a new home, refinancing a mortgage loan, or home improvements.

Benefits of a VA Loan

VA loans feature a number of benefits compared to conventional loans. If you are an eligible veteran or active duty personnel, then you should seriously take into consideration the VA loan as the most important option for mortgage financing. Benefits that make a VA loan better than the alternative are:

  • No down payment. Apart for a couple of options that have strict requirements, it is impossible to find a lending option that will finance 100 percent of the loan. There is also no prepayment penalty on VA loans, unlike conventional loans.
  • Lesser requirements. Your credit score will not matter as much as it would if you were to apply for a conventional loan. In fact, it is estimated that close to 80 percent of the people who choose a VA loan would not qualify for a conventional loan.
  • No mortgage insurance. Compared to conventional and FHA loans that require you to pay a small percent of the total loan amount as mortgage insurance, VA loans do not have this requirement.
  • Easier to refinance. You can easily qualify for a lower interest rate when refinancing within the VA program through their streamline refinancing option.

Types of VA Refinancing

Also known as the streamline refinance, the Interest Rate Reduction Refinance Loan (IRRRL) is the best choice if you already have a VA loan and want to refinance in order to reduce your monthly mortgage payments. Because you are refinancing from one VA program to another, this type of refinance will be completed quickly. Unless the lender specifically requests it, you won’t have to have your home reappraised. Also, closing costs can be rolled into the balance of the loan, meaning that you will have to pay little or nothing out of pocket.

Your other option when refinancing a VA loan is the cash-out refinance loan. This program will give you the opportunity to refinance your VA loan while taking cash out of your home’s equity for home repairs and improvements, or in order to pay off debts. Normally, you can refinance up to 90 percent of your home’s value with VA’s cash-out loan. You qualify for this type of refinancing based on your income and credit score. Same as with the IRRRL, the closing costs can be rolled into the entire loan amount.

Steps of VA Loan Refinancing

Refinancing a VA loan is a good choice if you wish to reduce the cost of your mortgage. However, you should be aware that refinancing can get pretty expensive. Refinancing fees, such as the origination fee and the VA funding fee, appraisals and closing costs, can make this whole process cost a few good thousands of dollars. If you have decided that refinancing is the right path for you, here are the steps that you should follow:

  • Contact a few mortgage refinance lenders until you find the best rates. The interest rate on your new loan will have to be lower than the one on the original loan, as this is a requirement of the VA Interest Rate Reduction Refinancing Loan program.
  • Your lender will ask you to provide documents that will prove your monthly income and expenses. Documents that you will have to show are your last two paychecks, your last two income tax returns, bank statements, and statements from other loans and credit cards.
  • Even if the VA doesn’t require this, it is up to each lender’s requirements, so you might be asked for permission to have your credit report checked.
  • The VA doesn’t require an appraisal for refinancing, but some lenders may require one, so they will hire a real estate appraiser to determine the value of your home. Unfortunately, you will have to pay for this appraisal.
  • After you receive the new loan terms and interest rate, you will need to sign a contract and start making the new monthly payments.

Refinancing a loan that is backed by the U.S. Department of Veterans Affairs is not a difficult process and the requirements are very lenient. While refinancing is typically a good choice and will improve your financial situation, you need to do your homework and look beyond interest rates when deciding if it’s the right choice for you.

Should You Refinance Your FHA Mortgage Loan?

FHA loans -150x150Federal Housing Administration (FHA) mortgage loans are a great choice for someone with a lower credit score, who is also looking for a loan with a lower down payment and closing costs. FHA loans are insured against default by the Federal Housing Administration, therefore allowing lenders to give out large mortgage loans. With down payments as low as 3.5 percent of the property price, an FHA mortgage loan can be a great choice when buying your first home. Also, FHA loans can be used if you need money to make repairs or improvements on your home, or if you buy a property that needs repairing.

Only available to homeowners who use their home as a primary residence, refinancing an FHA loan is a great way to save money. Because interest rates will be lower, refinancing an FHA loan will allow you to reduce your monthly payments. You will also have the option of reducing the mortgage loan term, from 30 years to 15 years, which will build home equity in your property faster.

FHA Mortgage Loan Refinancing Options

Refinancing an FHA mortgage loan is usually done through the FHA’s Streamline Refinance program, which can only be used when refinancing an FHA insured loan. This program allows you to refinance your FHA mortgage loan without getting a new home appraisal, with the condition that the new loan amount is the same or lower than the old loan amount. For refinancing a conventional loan to FHA, you will have to take the regular FHA refinance route. FHA’s Streamline Refinance program’s requirements are that the original mortgage loan must be FHA insured and in a good standing, you must have been the owner of the property for at least six months, and you must use an FHA approved lender. The refinance must result in a decrease of the principal and interest rate.

An option that is available for both homeowners with FHA and non-FHA mortgage loans is the FHA Secure Refinance program. This type of refinancing allows homeowners who are not keeping up with their adjustable rate mortgage payments to refinance into an FHA fixed rate mortgage.

When refinancing an FHA mortgage loan, you also have a cash-out option, which allows you to take out a larger loan than you currently owe and receive the difference as cash. The new loan can be as high as 96.5 percent of the property’s value.

Pros of Refinancing an FHA Mortgage Loan

Choosing to refinance an FHA mortgage loan can be beneficial to your financial situation. The process is easier than refinancing a conventional mortgage loan and, done at the right time, can help you save money. Here are some of the pros to refinancing an FHA mortgage loan:

  • An appraisal is not required. On a conventional loan, your home needs to be appraised when refinancing, in order for the lender to make sure that the property value is larger than the loan amount. When refinancing an FHA loan, the original appraisal is used, meaning that you can refinance even if your home’s value has decreased. You also save a few hundred dollars, which is what an appraisal would cost.
  • Your monthly payment will be lower. Because your interest rate will decrease when refinancing an FHA mortgage loan, your monthly payment will also be lower. Changing your loan from a 30 year to a 15 year term will also lower your interest rate.
  • Monthly income documentation is not required. While lenders will still verify that you are working, proof of your monthly income is not required. Because your mortgage is already insured by the Federal Housing Administration, your income will not be relevant.
  • Higher approval rate. The approval rate for FHA loans is much higher that the approval rate for conventional loans. This way, more people can own a home than with any other kind of mortgage refinance program.

Cons of Refinancing an FHA Mortgage Loan

While there are some clear advantages to refinancing an FHA mortgage loan, there are also some important drawbacks that you should take into consideration before deciding to refinance:

  • FHA mortgage insurance. When taking out an FHA mortgage loan, you will have to pay mortgage insurance for at least 5 years. After refinancing an FHA loan, the 5 year mortgage insurance requirement starts over.
  • Higher interest rates for people with good credit score. While FHA mortgage loans are very attractive for someone with a less than perfect credit score, they are not ideal for people with good credit scores. A conventional mortgage loan would be a better choice for someone with a spotless credit report.
  • Fees and closing costs. Between the transaction fee that you have to pay your lender, the recording and administration fees, you could be looking at a bill that can reach several thousand dollars. You will need to have a pretty important drop in your interest rate if you are going to justify the fees and closing cost.

When considering refinancing your FHA mortgage loan, it is very important to understand all the pros and cons. It may seem like an attractive option, but you need to exercise caution and document yourself as much as possible before making a decision.

Mortgage Refinancing Costs

home-mortgage-refinancing-150x150Refinancing Expenses

Home-buyers and homeowners alike are certainly aware of the affect the economy has had on home pricing and the housing market in general. While a great cross section of the global financial markets are re-tooling to adjust to the ‘newer normal’, for the time being, the positive side of the equation is the remarkably lower interest rates. This translates into many homeowners re-evaluating their options regarding refinancing existing mortgages for quite a few reasons. Whether the causes stem from a slow job market recovery, wage cut-backs, corporate down-sizing, or just trying to stretch a dollar a bit further, mortgage refinancing can be a great help in improving anyone’s cash flow problems. If the tactic is based on reducing the term of the mortgage, shaving off some of the monthly payment debt-load, or getting access to a portion of the equity, refinancing that mortgage is a great way to do it. There are, however, a few costs involved with the process, and they have to be factored into the plan before signing on the new bottom line.

Check for Pre-Payment Penalties

There are many variables to contemplate in the mortgage refinancing option. The primary consideration is the overall cost, which can run anywhere from 2% to 3% of the entire loan amount. Within this scenario, there may or not be pre-payment penalties on the original loan to be dealt with. Often these fees can be upwards of at least six months of interest should the mortgage be terminated within a specific time-frame, generally in the initial three to five years. Including pre-payment fee clauses in the new mortgage can sometimes result in lower interest rates, and void certain non-recurring expenses at closing. When evaluating the pluses and minuses of the refinancing equation, these are important numbers to be aware of.

New Loan – New Appraisal

Utilizing any one of the on-line mortgage or refinancing calculators is a very smart strategy, and can aid significantly when the time comes to crunch the numbers, and to evaluate the offers from different lenders. Factoring in the up-dated interest rate along with the new-and-improved monthly payment targets are just the beginning. There are the multitude of other expenses all wrapped up the closing costs that must be scrutinized and negotiated as well. One of these will be the new appraisal on the home, since most are only valid for three months. To hedge their bets in case the new mortgage rate will not be approved, lenders will generally request that the borrower cover this expense up front, which can run as much as $250 or more.

Equivalent Closing Costs

On top of this, there will be the costs associated with credit verification, origination, and loan processing, along with the third-party charges such as title search and insurance, document preparation, recording, attorney fees, and so on. The entire spectrum of estimated closing costs should be spelled out in the Good-Faith Estimate provided by the lender of choice, some of which are negotiable. Lastly there will be the ‘points’ associated with the loan, which are assessed by the lender as a form of pre-paid interest. On a long-term mortgage, these points lower the overall interest rate paid on the loan by as much as a quarter to a half percent, and represent approximately 1% of the loan amount, which are also paid up-front prior to closing.

In most respects, while refinancing a mortgage is a very wise approach to managing the budget more effectively, or gaining access to cash through tapping into the home’s equity, it is still much like getting a loan for the first time. Most of the costs involved are assessed in the same manner, and cover just as many procedures required by the lender as in the original loan process. However, as the financing, interest rate, and credit climate changes, so do the benefits. With access to a wide variety of lenders across the internet, and many quite eager to take on new business, shopping around for the most favorable offers for refinancing that old mortgage into new cash opportunities can be a very lucrative venture for many homeowners.

Best Mortgage Refinancing Indicators

home on computers 150x150When Should I Refinance My Mortgage

No doubt many homeowners across the country are evaluating the advantages and disadvantages of refinancing their current mortgages. This evaluation is also coupled with having a strong sense that the financial climate is favorable, or at least stable enough to make the process economically worthwhile. This decision is a critical one. Refinancing a home entails good judgment of timing, and can obviously result in substantial monetary gains and budgetary relief during tough financial periods. This, along with tight credit markets, allows homeowners an alternative means to acquire much-needed cash and budget flexibility for a multitude of reasons.

On the other hand, choosing the wrong time to refinance can result in even more financial woes, sending an already stressed-out budget into a tail-spin. The recent foreclosure rates are certainly a stark reminder of what can happen when the housing market takes a long-overdue dive from its former heyday in the earlier part of the last decade. Again, it is all about timing.

So, the issue of refinancing a mortgage revolves around the question of “Should I Refinance My Mortgage” . There are several key indicators to evaluate before expending the time and energy to accomplish this task, and whether or not the economic atmosphere in a homeowner’s local market is conducive to pursuing the process further.

Indicator: Qualifying for Lower Interest Rates

If the existing mortgage was processed at a time when the rates were much higher than at present, or more importantly, a borrower’s credit rating was at a lower point than it would be currently. By checking the current status of the credit scores, along with having a much improved credit history overall, will greatly affect the chances of acquiring a much lower interest rate in the refinancing process. In addition, the choice to refinance must be evaluated only when the interest rate factor is significant enough to warrant a major improvement to the monthly payment obligation, which is generally around 2% or more, to have an impact.

Indicator: Switching from an Adjustable Mortgage

If the current economic climate is having a serious affect on maintaining the budget as a result of taking on an adjustable rate mortgage in the past, when it was deemed both favorable and affordable at the time. Back then, the very attractive adjustable rate mortgage allowed borrowers to buy perhaps more home for their money, and reaped the short-term benefit of lower monthly payments. These payment obligations eventually became hard to manage when the flexible rates applied to those mortgages rose well beyond their short-term forecasting, and become financially unfeasible. The refinance plan would be to qualify for a fixed rate mortgage, and at a much lower interest rate, in order to stabilize the monthly repayment to a more budget-friendly amount. Though the refinancing process might entail new closing costs and penalties, the long-term gains may outweigh these initial expenditures.

Indicator: Time for Home Improvements

If gaining access to the equity in the home will allow long-overdue improvements to be made, and therefore greatly increase the overall market value of the property. Using the equity for unnecessary purchases, or those that can be postponed or paid for by other means, like vacations or a new car, is detrimental to the refinancing concept. Using the equity from the home to remodel, put on an addition, upgrade the appliances and so forth, will add more value to the refinancing equation. These equity funds took some time to accumulate, so the best investment is to put it back into the investment itself – the home, in order to better capitalize on the funds gained by the whole refinancing effort.