mortgage refinance

Home / finances / mortgage / mortgage refinance

How and When to Refinance Mortgage

In the volatile economy that has continued to fluctuate ever since the dual housing and banking crises of 2008, many people have taken advantage of the unique opportunity afforded by historically low interest rates to refinance their mortgage. In most cases, this is advantageous to home owners, giving them better interest rates on their loans as well as more flexible terms. For some home owners who may be underwater on their mortgage, the concept of refinancing takes on a more nuanced type of implementation. It may actually not benefit certain home owners to engage in an immediate refinancing of a piece of real estate.

Below are a few of the ways that you will be able to tell whether a mortgage refinance is for you and how to go about it if you decide that it is the best course of action.

Deciding on a Mortgage Refinance

In order to decide if your current financial situation is consistent with a mortgage refinance, you must first go over your short term finances. Refinancing requires fee payments that may outweigh the benefits if they create a financial problem in the short term. In most cases, banks will not allow a home owner to borrow the money that is needed for a fee payment, so that money must be on hand in cash at the time of the refinance.

Second, the long term financial situation of the borrower must be considered. Although most mortgage refinances tend to lower the interest rate on a loan, some of them actually increase the total amount of money that must be paid over the life of the loan. Therefore, the long term financial implications must be considered by the borrower before going into a refinance full steam.

Third, consider your long term credit and whether you have a bank that you can negotiate with. The three major credit reporting agencies are well known for making mistakes on their forms, so make sure that you check your reports before you go into a bank to negotiate. Also, make sure that you compare the three scores in order to find the highest of the three – banks will try to use the lowest of the three in order to charge you the most interest; if you present an official, sealed credit report to them rather than paying them to look it up, you may forego this type of scam.

How to Go About Finding the Right Mortgage Refinance

In order to find the right bank with whom to refinance, you will likely have to compare many banks side by side. There are many websites whose sole purpose is to accommodate this type of comparison. Banks also view those websites as great business hubs and they are much more likely to offer a better deal for customers who come from those websites than those who access their institutions directly.

 

Once you have your short list of banks who are willing to negotiate, let those banks know that you are open for business. Do not feel as though you have to stay with your current bank in order to get the best deal; you can actually get a better deal from other banks who are looking for that new interest line. Make sure that you know the going market rate for the mortgage refinances in your area in order to compare any rate that you obtain from banks to the overall rate in your area. Many times, you may be able to get a better deal if you expand your search beyond the local market. Internet comparison sites are one of the best ways to quickly find out of town banks that may offer better rates than your local financial institutions.

Fixed or variable

You must consider the type of refinance that you want – fixed or variable. Variable rate refinance loans are almost always lower than the fixed rate at any given time; however, financial institutions sometimes retain the right to change the interest rates that they otherwise would not have in a fixed rate contract. Variable rates are great for home owners who have a plan to pay off a loan in a short period of time. If the loan is paid off quickly, the bank will not have a chance to try to raise the interest rate based on market conditions or the actions of the Federal Reserve. For 30 year loans that a home owner expects to pay off on time, fixed rates are usually best.