Home Mortgage Refinancing Guide

If you are considering taking out a new mortgage, there are decisions you need to make before choosing a new mortgage loan. One important question you need to answer before refinancing your mortgage is the reason you are choosing to do this.

There are a number of reasons homeowners choose to refinance their mortgage loans, and you can refinance for these reasons in any economy. These reasons include: qualifying for a better interest rate, cashing out equity in your home, and consolidating your debts.

Refinance to Lower Your Interest Rate

If your goal is to qualify for a better interest rate than your existing mortgage you can do this when interest rates go down or your financial situation improves. There are a variety of mortgage lenders that will work with to qualify for better rates, especially if you have good credit. The Internet is an excellent tool to help you search for mortgage lenders that meet your particular needs.

Refinance to Cash out Equity

Refinancing your current mortgage can give you access to equity you have in your home. When you refinance a mortgage to take out equity, you borrow more than the outstanding mortgage loan. The difference between your old mortgage and the new mortgage is what you will receive in cash.

Consolidate Your Bills

When you refinance your mortgage and take cash back, you can use this money to pay off your other high interest debt. If you carry a large amount of credit card debt you could save yourself a lot of money by consolidating this debt with equity from your home and gain a tax deduction for the interest you pay. You can learn more about your mortgage options, including common homeowner mistakes to avoid by registering for our free mortgage guidebook: “Mortgage Refinancing: What You Need to Know.”

When you refinance your mortgage loan you will be required to pay closing costs; this expense is the fees you pay to finalize your mortgage loan. Before choosing a mortgage you should examine the closing costs found on the Good Faith Estimate provided by your mortgage lender. It is important to use the closing costs as part of the comparison you make prior to choosing a lender. Many homeowners overlook closing costs and wind up overpaying for their new mortgage because of it.

Some Lenders Will Finance Closing Costs

Your lender may allow you to finance the closing costs. The advantage of this is you will not be required to have cash on hand at closing. Your closing costs and any additional lender fees are simply tacked onto your loan balance. Remember that if you finance the closing costs you will pay interest on that higher amount; the closing costs you finance will end up costing you a lot more than if you had paid cash at the closing table.

When you review your final paperwork make sure the lender has included a tax adjustment. Tax adjustments are often left out by the lender and can save you hundreds of dollars. Before you sign the loan contract it is important to understand what you are paying in closing costs and who the fee is being paid to. This is especially important if you used a mortgage broker to find the loan; if you do not understand where your broker’s fee is paid you could be in for a costly surprise when you close on your new mortgage. You can learn more about finding the right mortgage for your financial situation without overpaying for it by registering for our free mortgage guidebook: “Five Things You Need to Know before Refinancing Your Mortgage.”

If you are considering a home equity loan, shopping for the best deal could save you a lot of money. Shopping for multiple quotes from a variety of home equity lenders will help you find the best loan you can qualify for. Many homeowners make the mistake of not comparison shopping before taking out a loan; if you neglect to do your homework it is easy to overpay on everything from your interest rate to your closing costs. Here are the basics of home equity loans to help you find the best loan for your financial situation.

Home Equity Loan Basics

When you borrow against the equity, the loan is secured by your home just like your primary mortgage. Equity is the difference between what you owe on your current mortgage and the appraised value of your home. If for example, your home is valued at $200,000 and you owe $50,000, then your equity is $150,000.

Lenders will not typically allow you to borrow the full amount of your equity. You can typically only borrow between 75-80% of your equity from traditional mortgage lenders. The interest rate and terms you receive on your home equity loan depend largely on your credit, loan-to-value ratio, and how much you are borrowing.

Shopping for the Best Home Equity Loan

Collecting home equity loan quotes is not difficult. You can use the internet to collect quotes from a variety of lenders and easily compare interest rates, fees, and closing costs. When you shop for a home equity loan try and collect your quotes at the same time. The reason for this is that interest rates fluctuate on an almost daily basis; if you let a quote sit for too long that interest rate may no longer be valid.

You can learn more about your home equity loan options, including common mistakes to avoid by registering for our free mortgage guidebook: “Mortgage Loans: What You Need to Know.”

Shopping for the best mortgage can help you qualify for the best mortgage interest rate. Comparing loan offers can be difficult if you don’t know what to look for. Here are tips to help you compare offers and choose the best mortgage for your financial situation.

When you collect loan offers try and do your shopping over a short period of time, even the same day if possible. Mortgage interest rates can change on a daily basis so if you spread your quotes out over too much time the interest rates quoted will no longer be valid.

When you compare loan offers, group your quotes by the duration of the interest rate lock. Mortgages with longer lock periods typically have higher interest rates; comparing loans with equal lock duration will give you the best comparison. Additionally, you will need to compare offers with comparable discount and origination points.

When comparing mortgage offers make sure you are using the fees found on the Good Faith Estimate, as this document will itemize all loan fees and who they are paid to. You can request the Good Faith Estimate before submitting your application; use this document when organizing your loan offers for comparison.

When you submit your application the lender will run your credit. Mortgage lenders will not guarantee an interest rate without accessing your credit records.

If you are shopping for a mortgage loan and are considering taking out an adjustable rate mortgage, you need to weigh your options and understand the risk before taking out one of these loans.

Adjustable rate mortgages are also known as variable rate mortgages have an interest rate that changes at regular intervals. Your interest rate changes in accordance with the financial index the loan is tied to. The risks involved come from the interest rate changes and how they affect your monthly payment amount. When the mortgage lender raises your interest rate the monthly payment will go up with it and you may not be able to afford the payments.

The advantage of this type of loan is that if rates fall, your monthly payment will go down. Adjustable Rate Mortgages typically come with an introductory interest rate that is fixed for a period of time. This introductory rate is usually much lower than the actual interest rate and the lender will adjust this rate at the end of the introductory period. If you have little tolerance for financial risk, you are probably better of with a fixed rate mortgage. This allows you to budget for you mortgage payment as you will always know the payment amount.

If you decide an Adjustable Rate Mortgage is right for you, you will want a loan that has caps to protect you from excessive rate and payment hikes. Make sure your loan has both interest rate and payment caps; if these caps are not structured properly you could end up with a negatively amortizing loan that grows over time. Choose a mortgage that has the option of converting to a fixed rate loan if your needs change in the future. To learn more about your mortgage options, including common mistakes to avoid, register for our free mortgage guidebook: “Mortgage Loans: Five Things You Need to Know.”