Mortgage Refinancing: The Overlooked Mistakes You Want to Avoid!

Mortgage Refinancing-The Overlooked Mistakes You Want to Avoid- 150x150Mortgage refinancing can be a true life saver when done correctly and at the right time. Making your monthly mortgage payment smaller will free up cash that can be used for other monthly expenses or be put in savings. But before you are lured by the smaller mortgage payments and interest rates, you must be sure that you understand how refinancing works. Understanding this process is the only way in which you can make sure that you avoid making mistakes that will cost you time and money.

Refinancing is expensive and it comes with considerable risk, especially for those who are first time home owners and for those that are refinancing for the first time. The most important thing when refinancing is finding out if the new loan is truly saving you money. Taking refinancing costs into consideration is very important when comparing your current loan to the new loan. Another important thing to consider is how long you plan on living in your home. In order to cover the cost of refinancing, you will have to live in your home for two or more years.

Making a mistake when refinancing is very easy and you will end up regretting making the decision to refinance. But do everything by the book and refinancing will prove to be exactly what you needed to make your life easier. Here is a list of the mistakes that you want to avoid making when refinancing.

Mistake #1: Refinancing Multiple Times

In rare cases, refinancing multiple times makes sense, especially if it is done over the course of a few years. But most of the time, if done very often, refinancing multiple times will result in losing money instead of saving it. Low interest rates are attractive for everyone, and most home owners will give refinancing a thought when interest rates are near record lows. Home owners who have recently refinanced might get the idea that they will save even more money if they refinance again, because the rates are so low.

Unfortunately, refinancing is expensive, costing up to 6 percent of the loan amount. Saving enough in interest for the closing costs to be covered is unlikely if you recently did another refinance. This means that your loan balance will increase, negating the savings that refinancing should bring, making you lose money. It is recommended that you don’t refinance before recuperating the closing costs from your last refinance.

Mistake #2: Not Shopping Around for a Lender

Lenders are always competing with each other, so shopping around for a refinance is a smart thing to do. Even if the first loan that you are offered has a low interest rate, good terms, and seems like exactly what you’re looking for, you still have the option of contacting other lenders. By comparing mortgage lenders and what they are offering, you could save thousands of dollars.

If you have a good relationship with your current mortgage lender, he might offer you a good deal on refinancing. Even if that is the case, it doesn’t hurt to take a look at what other lenders are offering.

Mistake #3: Ignoring Some of the Costs of Refinancing

If you are planning on refinancing your mortgage, you need to find out if the savings outweigh the cost of refinancing. Refinancing closing costs involve several fees, some high and some low. Not taking into consideration some of these fees, like the origination fee, which can be a few thousand dollars, can make refinancing more appealing, but there is no way of avoiding this fee. You might think that you are saving money by refinancing when in fact the closing costs will be much higher than the savings you are making by taking out a loan with a lower interest rate.

Mistake #4: Not Locking In Your Interest Rate

Not locking in your interest rate is like gambling. You hope that the interest rates will go lower before closing, and you end up with a more advantageous rate, but you are aware that there’s a risk that the interest rate will increase, making your payments higher than you anticipated.

Not locking in your interest rate is especially dangerous with refinancing, because you have to make sure that refinancing will actually help you save money. If you come to the conclusion that you are, indeed, saving money with the interest rate that your lender is offering, but don’t lock in and the interest rate increases, the whole refinance could become just a waste of time and money (Read: Mortgage Refinancing Guidelines).

Mistake #5: Extending Your Mortgage Loan’s Term

When refinancing, you are basically resetting the term on your mortgage loan. Your monthly payments will be lower, but you will be paying more in interest, especially because most of the payments go towards the interest when taking out a new mortgage loan.

Extending your mortgage loan’s term would be a mistake, and you should aim towards taking out a loan with a term close to what has remained on your current mortgage, or even shorter.

Taking precautions before refinancing will help you find out if refinancing is the right step for you, and make sure that the whole process goes smoothly. Your goal is to save money on your mortgage, so avoiding these mistakes should be your top priority when refinancing your mortgage.

How to Take the Headache Out of Cash-In Refinancing

How to Take the Headache Out of Cash-In Refinancing-150x150You have probably heard of cash-out refinancing, which allows the borrower to leave the closing with a little extra money. This type of refinancing was very popular a few years ago, before the housing market crashed. The United States Housing market is currently still recovering, so cash-out refinancing is not so popular anymore.

A type of refinancing that is pretty much the opposite of cash-out refinancing is cash-in refinancing. With a cash-in refinancing, the borrower makes cash payment when refinancing, instead of receiving a cash payment. This type of refinancing is used by more and more borrowers because it helps them meet the lender’s requirements. The borrower makes a payment towards his or her mortgage balance, and then takes out a new loan for a much smaller amount. Most people who choose to do a cash-in refinance have money sitting in savings accounts that yield low returns, and would like to put that money to better use.

Is Cash-In Refinancing a Good Idea?

Paying off your mortgage easier or earlier is a great feeling, but you might be asking yourself if that money would be put to better use if you invested it in something else. You could be investing the thousands of dollars that you are using in a cash-in refinance elsewhere, but this type of refinance can also be considered a good investment. Reducing your mortgage debt will get you a lower interest rate, which would bring you some large savings and possibly be more than the return that some investments would generate.

Cash-in refinancing is a great opportunity for home owners whose homes have declined in value. If the home is appraised for a low amount, the equity in it might not be enough to meet the lender’s minimum lending requirements, so making a large payment will certainly help you qualify for a refinance much easier. Making that payment required in a cash-in refinancing will also help you avoid having to pay for Private Mortgage Insurance.

You might want to reduce your mortgage term, from 30 years to 15 years for example, but you wouldn’t be able to afford the much larger monthly payment. By doing a cash-in refinance, you lower the mortgage balance, making it much easier for you to reduce the term of your mortgage loan and afford the new monthly payment.

Of course, like with any type of refinancing, there will be a couple of years or more until the amount of money that you used to pay the closing costs with will be recovered by the savings from refinancing (Read: Refinance Loan Types and Closing Costs).

Another downside is that you have to come up with a large amount of money for the required cash payment, which may cause you some trouble if you are taking it from a 401k, for example. Taking money from a 401k will attract some penalties, such as recovery or repayment costs. Obtaining the money by selling stocks could result in having to pay a capital gains tax.

The thought of saving thousands of dollars by doing a cash-in refinancing is very appealing, but, like with any type of refinancing, you must consider all the risks as well. Your financial situation and future plans should be the most important factors affecting the decision to refinance. If you come to the conclusion that doing a cash-in refinance will save you money and make your life easier, then you shouldn’t encounter any problems as long as you have done your homework and understand what it involves.

Mortgage Loan Recasting – An Option You’ve Never Heard Of

Mortgage Loan Recasting-An Option Youve Never Heard Of- 150x150When you buy a home using a mortgage loan, you will have to repay your lender by making monthly payments. These mortgage payments usually stay the same for the duration of the repayment period. Over the years, coming up with the money for the monthly mortgage payment can be a burden, or you may simply come to the conclusion that your payment is too large and would like to lower it.

There are two ways in which you can lower your monthly payment. The first one, and the most popular, is refinancing, which helps you get a new loan with better terms. Unfortunately, the high cost of refinancing can make this option seem less appealing, especially if current mortgage rates are not that advantageous. In that situation, you could actually be losing money by refinancing. So, when refinancing, you have to make sure that the new loan plus the closing costs won’t end up costing you more money than your original mortgage loan. Refinancing is usually a great choice when interest rates are very low and when you are sure that you are able to secure a much lower rate than you have now. The second option that you have, when you want to reduce your monthly payment, is mortgage loan recasting. Depending on what interest rates are offered by lenders and on what your current financial situation is, mortgage loan recasting can make more sense than refinancing.

What is Mortgage Loan Recasting?

On most mortgage loans, the monthly payment stays the same until the loan is paid off. You may want to reduce your monthly mortgage payment because you want to pay less interest or simply because you have recently received a large sum of money, possibly from an inheritance or a holiday bonus. Most lenders don’t allow you to repay your mortgage loan earlier, so your only option is to recast your mortgage. When recasting a mortgage loan, you make a larger payment towards the principal on your loan, after which your lender will calculate a new amortization schedule which will be based on your new mortgage loan balance.

Mortgage loan recasting is a good alternative for borrowers who are unable to refinance due to having low home equity, or for those who have come to the conclusion that it is not a good time to refinance their mortgage. Mortgage loan recasting is also significantly less expensive than refinancing. On average, mortgage recasting only costs a few hundred dollars.

Advantages and Disadvantages to Mortgage Loan Recasting

The largest benefit that recasting your mortgage loan has is that it reduces the remaining balance on your loan, therefore making your monthly mortgage payment lower. You have the option of making the same monthly payment and paying off your mortgage loan quicker, or using the difference for other expenses. Another advantage is when buying a new home before you have sold your previous one. After finally making the sale, you can use the profit to recast your new mortgage.

The biggest disadvantage of mortgage loan recasting is that you have to make a large payment towards the principal of the mortgage loan. That sum of money could be invested into something that could yield a return, or simply kept in a savings account as an emergency fund. Another disadvantage, especially when compared to refinancing, is that the interest rate on your loan will stay the same after mortgage loan recasting. If interest rates are low, it could make more sense to refinance and lower the interest rate on your mortgage.

Before deciding to do a mortgage loan recasting, make sure that you understand what the advantages and disadvantages are, and make sure that refinancing isn’t a better option. Your main goal should be saving money, and you should always take the path that brings you the most savings.

 

Here’s What You Can Do When Turned Down for Refinancing

Here's What You Can Do When Turned Down for Refinancing- 150x150Refinancing is a great way of saving money on your mortgage when interest rates are low. Refinancing has strict guidelines, and making your mortgage payments on time may not be enough to convince your lender to allow you to refinance. Mortgage refinancing requires a home appraisal, a significant number of documents that show your income and assets, and a good credit score. Not meeting one of the lender’s requirements may result in a denial. Fortunately, being turned down for refinancing is not the end of the world and you should know that you still have options. Here are a few reasons why you may be denied and what you can do to make refinancing possible.

Little or No Equity in Your Home

The number one reason why home owners are being refused when trying to refinance is the lack of home equity. Your problems don’t even have to go as far as being underwater on your mortgage, or owing a larger amount than your home is worth. Simply having low or no equity in your home can trigger a denial from your lender, because they prefer a borrower who has a nice amount of cash tied up in his or her home. The simplest way out of this situation is to come up with more cash, but, if you take into account the high refinancing closing costs, you might realize that a few extra thousands will be hard to find.

An alternative would be the Home Affordable Refinance Program (HARP), designed by the government to help home owners with little or no equity in their homes. Recently, this program has undergone some changes, which should help you get approved easier than before. The program is designed for home owners who have less than 20 percent equity in their homes, but some lenders might use their own guidelines when deciding if you qualify for HARP.

Another alternative would be refinancing into a Federal Housing Administration (FHA) mortgage. FHA mortgages require a low down payment and equity, but you may be required to pay additional insurance on this type of government insured mortgage loan.

Low Credit Score

Your credit score has a large impact on not only your interest rates and the loan value, but also on whether you will be allowed to refinance or not. If your credit score is bad, your only chance of refinancing is by improving it. It might take a year or two, but if your credit score wasn’t affected by anything major, you should get it into a more favorable range with little effort. Paying your bills on time is the first and most important step when trying to increase your credit score. If, however, you have a large blemish on your credit report, such as a bankruptcy, then increasing your credit score will prove to be more difficult and can take up to 10 years.

Low Income

Lenders usually require your debt to not exceed 43 percent of your monthly income, while monthly mortgage payments, property taxes and insurance are limited to 30 percent. Reducing your debt can help tremendously when trying to look better in the eyes of a lender. You could quickly pay off some or all of your debt if you have access to savings or other investments. Some of these solutions might not be the best, and it all depends on your situation, and how much you want or need to refinance.

Of course, the simplest thing you can do when being turned down for refinancing is talking to another lender. Lenders are in competition and sometimes have significantly different offers for their customers, so shopping around is always a great idea, even if you are approved by one lender. You might find a more attractive offer with a lower interest rate or closing costs somewhere else. Don’t be discouraged if your refinancing is declined because there are ways in which you can drastically improve your chances in a very short amount of time.

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

Can You Get a Lower Mortgage Rate without Refinancing? The Answer May Surprise You

Can You Get a Lower Mortgage Rate without Refinancing- The Answer May Surprise You-150x150Over the past few years, interest rates have kept falling, reaching record lows. More than likely, you know people who have refinanced and now have much lower interest rates than you do on your mortgage. Refinancing is one way of lowering it, and it can be beneficial in most cases, especially when rates are this low. But you did your homework and came to the conclusion that refinancing will lower your monthly payment, but not enough to make up for the high closing costs. Another reason why you are not refinancing can be that you simply can’t afford it. Fortunately, there is another way in which you can lower your mortgage, without paying thousands in closing costs.

Most people are refinancing as soon as the rates fall, without taking the high closing cost and the fact that they are basically resetting their mortgage into consideration. For some, lowering their mortgage interest rate is the only way they can get some peace of mind, so current mortgage rates today seem very attractive. If you are someone who reached the conclusion that refinancing doesn’t make sense for you, but would still like to lower your mortgage rate, then you should know that there are alternatives.

Lowering Your Mortgage Rate without Refinancing

If you can’t afford to refinance because of the high closing costs, or you simply don’t want to refinance but can afford to make a larger monthly payment, then you can talk to your lender about lowering your interest rate by prepaying the mortgage principal. By making additional payments towards your principal each month, you can even save as much as you would by refinancing.

Restarting a mortgage through refinancing is time consuming and expensive, but if your monthly budget allows you to spend a little extra on your mortgage each month, then this is a great alternatives. Of course, this alternative will increase your monthly mortgage payments, but prepaying your mortgage will save you money in the long run.

Another way in which you could make paying your mortgage easier is by convincing your lender to give you a better rate. You can start by contacting your lender and explaining that you would like a better interest rate, but can’t afford to refinance, or simply choose not to because it wouldn’t make sense financially. If you have a good relationship with your lender, they might agree without giving you too much trouble.

Talk to your lender about your financial trouble, so that they can make sure that you deserve to have your loan modified. The lender could modify the loan, or he could help you go through the government’s Home Affordable Modification Program, which is designed to help home owners who are facing financial difficulties keep their homes.

In many cases, refinancing is the best choice when looking to reduce your mortgage payments. Unfortunately, being an expensive process with plenty of drawbacks, it is not for everyone. So, if you do the proper research and find out that refinancing is not an option for you, then you are better off trying to get a lower mortgage rate without refinancing, through one of the alternatives described in this article.

Addicted to Refinancing Your Home Multiple Times? You’re Not Alone

Addicted to Refinancing Your Home Multiple Times- You're Not Alone- 150x150A few years ago, when the housing market was booming, many home owners started to take advantage of the lower interest rates by refinancing their mortgages. For many borrowers refinancing is a great opportunity to save money on their mortgage, but there are other factors besides the interest rates that should be considered when determining if refinancing is a good choice.

Refinancing a mortgage multiple times has become a trend among borrowers, with more than 2.2 million refinances recorded since 2009. Because interest rates are still near record lows, there really aren’t any reasons for home owners to stop refinancing. Normally, refinancing a mortgage is an expensive process, so the high cost doesn’t always financial sense for home owners to go through with it, even if the interest rate on the new loan is significantly lower.

But lenders are coming up with ways of attracting refinances by lowering the closing costs or waiving certain fees, making refinancing much more accessible. Closing costs are not the only factor of what home owners should consider before refinancing. Many mortgage loans also include a prepayment clause, which force the borrower to pay a steep penalty if they wish to pay off their mortgage earlier. Some lenders are even willing to waive the prepayment penalty. Don’t be fooled, though. Lenders usually recover the waived and lowered fees by charging a higher interest rate.

Should You Refinance Multiple Times?

Through history, as interest rates went down, the number of home owners who refinanced went up. Right now, with interest rates on the rise, but still near record lows, and the job market recovering, people are in a rush to refinance their mortgages. Refinancing more than once makes sense, but only if you do your homework, and come to the conclusion that it will actually save you money. Many borrowers refinance thinking that a lower interest rate will save them money, while the cost of refinancing may actually cause them to end up with a more expensive loan, which will result in losing money.

Refinancing and getting a lower interest rate will not only reduce your monthly mortgage payment, but will also reduce the principal on your mortgage. Having a lower mortgage payment will free up money that can be used to make other purchases or even pay off other debt, which will increase your credit score, making future loans more accessible.

The downside to mortgage refinancing is that, with each refinance, you are basically resetting your mortgage term to a longer term, such as a 30-year term. This means it will take you a longer time to pay off your debt. Refinancing also requires a lot of running around, gathering several documents and more scrutiny on your credit score. The biggest downside of all is that refinancing is normally an expensive process, which can actually cause you to lose money.

Refinancing isn’t really a viable option for borrowers with low credit scores. Even if the lender is willing to waive some of the closing fees, applying for refinancing with a low credit score will either get you rejected, or you may find that there is no way to receive a loan with a lower interest rate.

Refinancing multiple times pays off for many home owners, especially if they manage to secure a lower interest rate and the lender is willing to waive some of the closing costs. When trying to determine if refinancing again is a good idea, make sure that you take all of the costs into consideration, or you might end up paying more than on your previous mortgage loan. Saving money by refinancing is more than just getting a lower interest rate from your lender. If you do the research and come to the conclusion that refinancing again is worth it, then doing it multiple times is a wise choice.

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.

See How Easily You Can Refinance Your Mortgage the Second Time Around

See How Easily You Can Refinance Your Mortgage the Second Time Around-150x150Refinancing can save you lots of money, especially right now with interest rates near record lows. But refinancing can quickly turn ugly if you don’t pay attention to every detail. Most times, refinancing your mortgage looks great at first glance, but you need to know when to refinance and how often.

Lately, interest rates have started to increase again, but rates were at record lows recently. Many home owners have taken advantage of the new interest rates and refinanced their mortgages. But some have been doing it again and again without seriously taking into account the negative aspects of refinancing multiple times.

Reasons for Refinancing a Second Time

Generally, home owners are advised to not refinance more often than every 3 years because the cost of refinancing is high and can quickly become a burden, making loans actually cost more than if they had stayed with the initial interest rates. The truth is that if you can refinance for a much lower interest rate and plan on living in the home for a long time, then refinancing should be considered, even if it hasn’t been 3 years since you last did it. Here are a few reasons why refinancing a second time is an attractive option.

  • First, and most important, the more you can lower your interest rate, the more sense it will make to refinance again. Lowering your interest rate by, for example, 1 percent will result in great savings, which will far exceed the refinancing cost. Interest rates are on the rise right now, but they are still low, so refinancing again might still make sense. Before refinancing a second time, you must make sure that what you save in interest costs will exceed the cost of the refinance; otherwise, you will be losing money.
  • Refinancing again can also help you remove a borrower from your mortgage. If, for example, you bought the home together with a friend or family member and one or both parties no longer wants to have their name on the mortgage, this can be rectified by refinancing. Most lenders will also require you to refinance if you want to remove your spouse from the mortgage after divorce.
  • Refinancing for a second time before the recommended 3 years also makes sense if your financial situation changes. For example, if your income decreases, you might not be able to pay your mortgage anymore because the monthly payments are too large, so refinancing into a mortgage with longer terms will lower your payments. Changes in your financial situation can also mean that your credit score has improved, which will help you qualify for a better interest rate.
  • A cash-out refinance can make sense, even if you just recently refinanced. This kind of refinance occurs when you take out a larger mortgage than the one you have now and receive the difference as cash. A cash-out refinance can provide money you might need for repairs, improvements, medical bills, or school tuition, but you need to understand that this will lower the equity in your home, so you will receive significantly less money if you decide to sell your home (Read: Is Cash-Out Refinancing a Good Idea?).

Refinancing your mortgage the second time around should not pose any difficulties, unless your credit score has gone down or you  are facing other financial issues. You must keep in mind before starting the process that refinancing is expensive. Many home owners are so blinded by the new lower interest rate that they forget to take the refinancing cost into account and end up actually paying more than they did for their initial loan.

Quick Tips on Mortgage Refinancing

Quick Tips on Mortgage Refinancing- 150x150Refinancing can be a great way of reducing your interest rates and monthly mortgage payments. With refinance rates on the rise but still near record lows, now may still be the most opportune time to refinance, as rates are predicted to continue to increase in the future. Unless you’re a few years from paying off your mortgage, by refinancing you can lower your monthly payments and free up cash that can be invested or used to remodel and repair your home.

Refinancing also has its negative sides, like being a fairly expensive process, but it is up to you to take a close look at your financial situation and decide if refinancing is worth the cost, and if it will, indeed, save you money over time. Here are a few quick tips for those who are considering refinancing their mortgage:

Quick Tips

  • Check your credit score. Before applying for refinancing, make sure that your credit score is in great shape. Refinancing takes a lot of work and time, and all this would be wasted if you get rejected because your credit score is not good enough.
  • Don’t rely on the advertised interest rates. Lenders will usually advertise their best interest rates in order to attract more customers. The truth is that the rate that you will get will probably not be the one that you have seen advertised. Your interest rate will depend on many factors, such as the size of the mortgage loan, mortgage points, if the rate is locked in and many others.
  • Know what you want. Carefully weigh in on all of your options before contacting a lender to refinance your mortgage loan. Knowing what type of a loan you want, like a 15-year or 30-year mortgage, can make it easier for the loan officer to find a better rate for you. Also, it’s recommended that you know how much you are willing to spend on points in order to get a lower interest rate.
  • Contact your current lender first. If you are a good borrower, pay your mortgage on time and have good credit, chances are that your lender will do anything in his power to keep you as a customer. Your lender may even offer to waive some of the refinancing costs, like appraisal and inspection fees.
  • Shop around for a refinance. Closing costs and interest rates vary from one lender to another, so it doesn’t hurt to shop around a little. You might actually be pleasantly surprised and find a lender that will give you a much better rate than the others or waive some of the closing fees, making refinancing cheaper than you thought it would be.
  • Try to avoid “no cost” refinancing. “No cost” doesn’t actually mean free. The closing costs are bundled into the mortgage, which means that you’ll be paying interest rate on that amount, making the closing costs more expensive than they would have been if you paid them beforehand.
  • Save money by avoiding tax and insurance escrow services. Having a little discipline and paying your property taxes and insurance on time will save you money over using an escrow service that charges for something that you can easily do yourself.
  • Make sure you don’t have a prepayment penalty on your mortgage. Chances are you will find refinancing options that save you money, but it may all be for nothing if you haven’t been paying attention to your current mortgage contract. A prepayment penalty can make refinancing turn from a money saver to something that will end up costing you more than your original mortgage.

Whether refinancing is a good idea or not is up to you, as it largely depends on many factors. Refinancing can be a good choice for some, helping them save some money on their mortgage. Between the closing costs and all of the requirements, refinancing can turn out to be a bad choice for others, which can result in wasted time and money. At the end of the day, it is up to you to evaluate your situation and budget, and decide if mortgage refinancing is your best choice.