When it comes to refinancing your home loan, the more you know, the more you’ll save.
Refinancing your home mortgage without paying too much involves cutting through lender hype and carefully evaluating your mortgage needs and choices. Here are several tips to help you avoid overpaying for your next home mortgage loan.
Should You Refinance Your Mortgage?
Many people refinance to improve the terms of their mortgage loans. Getting a “better” loan can mean different things to different homeowners. For you, a better home loan could have a lower mortgage rate and payment amount, it could mean converting a risky adjustable rate mortgage to a fixed rate loan, or it could mean taking cash back for home improvements.
Whether or not you should refinance depends on your needs and when or if you’ll break even on the new loan. If you’re taking cash back you might end up with a higher mortgage rate than you have now; in this case you’ll probably not recoup your expenses from refinancing. If you’re trying to save money on your mortgage the decision to refinance can be based on how long it will take you to recoup your expenses from taking out a new loan. You can easily determine this by dividing your total closing costs and fees by how much lower your new monthly payment amount will be. This will tell you the number of months it will take you to break even on the new loan.
How Hard is Qualifying to Refinance?
Mortgage lenders tightened their requirements when Freddie Mac and Fannie Mae changed the percentage of your home value that can be financed. Lenders have much narrower criteria for judging acceptable credit and there are fewer loan options available today. If you purchased your home with a sub-prime or stated income mortgage loan you could find it difficult to refinance your mortgage without changing your financial situation.
The mortgage you choose when refinancing depends on several factors. How long do you plan on keeping your mortgage and what do you need from the new loan? If you only plan on keeping your home for a short while you’ll have more options; however, the longer you plan on keeping your home the better your opportunity to save money when refining.
Get a Lower Mortgage Rate
There are a number of ways to qualify for a lower mortgage rate when refinancing your home loan. You can do this for yourself by choosing an Adjustable Rate Mortgage, refinancing your subprime mortgage with a conforming loan, consolidating your home equity or second mortgage, or simply finding a better mortgage that doesn’t include commission based markup of the mortgage rate.
Lower Your Mortgage Payment
You can temporarily lower your mortgage payment by choosing an interest only loan or do so permanently by extending the term length of your new loan. Traditional mortgage loans have a term length of 30 years; however, there are now mortgages available with 40 year terms. If you are a senior citizen consider a reverse mortgage to generate income or free up cash for other bills.
Mortgage Refinancing Emergency
If you’re a homeowner who is underwater in your existing mortgage or can no longer afford your monthly payment due to your ARM resetting, you could benefit from FHA bailout programs. Your existing lender might need to agree to a modification or deferment to allow you time to catch up; however, help is available.
You can learn more about refinancing your home mortgage loan without overpaying or making an expensive mistake by registering for my Underground Mortgage Videos. Register today and you’ll learn how to refinance without paying commission based markup or lender junk fees and save thousands of dollars in the process.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
