4 Strategies for Smart Mortgage Refinancing

4 Strategies for Smart Mortgage Refinancing

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As mortgage financing rates flirt with all-time historic low rates, consumers in a position to refinance their homes may want to consider doing so now. Inflation, when it eventually rears its ugly head, will start to drive up interest rates making it more costly and difficult for some homeowners to refinance later on.

There are four steps for every homeowner to take when refinancing their mortgages. Step one is pivotal, because if you can’t justify refinancing right now, then you’re better off skipping it altogether.

1. Is it worth your while? Just because rates are near their lowest levels doesn’t mean you should automatically refinance. Writing for the June 30, 2009 issue of CBS Moneywatch, Allan Roth advises that paying down an existing mortgage may be more beneficial to the homeowner than incurring the cost of a new loan. An accelerated payment schedule costs you nothing while a new mortgage can add thousands in fees and closing costs. Use a home refinancing calculator to determine what you will gain by refinancing.

2. Get your paperwork in order. Online refinancing is so easy, but as soon as you are approved for a new loan, you’ll need to forward your paperwork to the lender. They’ll want to see a number of things including your current mortgage information, bank statements, pay stubs, homeowners insurance policy and your state and federal incomes tax reports for the past several years. Gather your paperwork now and send copies (not originals) to the designated address.

3. Shop for home loans. Before agreeing to a loan with a new lender, ask your current lender if they can offer you better terms. There are two advantages in taking this approach: your lender is already familiar with you and some, if not all of the closing fees, might be waived. If your personal financial picture is strong and your home value has remained stable, then refinancing should be an option for you. If your current lender isn’t able to offer you a better deal, check with banks and mortgage companies who want to work with you.

4. Take a deep breath. Once you have found other loans, take a deep breath. That’s because what on the surface may look like a good deal may not be. If closing costs are high, ask your potential lender if they can be lowered. Some expenses can be waived or reduced but beware of lenders who are all too willing to fold refinancing expenses into your new mortgage.

Once you are confident you have found the right refinancing deal, then ask your lender for a rate-lock. With one in place, you can protect yourself from a sudden interest rate spike which could cost you thousands of dollars in interest payments over the life of your home loan.

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Categories: Home Financing

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