How to Make a Mortgage Refinance Loan Affordable

01/21/2012

Refinance Loan Mortgage interest rates are at a record low. A typical 30-year fixed rate mortgage is going for a record 4.8% interest rate. This can only mean one thing… this is the golden opportunity you have been waiting for to refinance your current mortgage loan if you are paying a comparatively high rate on it. While refinancing could seem like the best course of action, there are some basic factors that you will need to consider if you want to refinance your current mortgage loan. Here are some tips to guide you on the right course of action.

First and foremost, even before you start comparison shopping, you will need to decide whether refinancing is the right course of action. This you do by asking yourself what you want to achieve by the end of the deal. Perhaps you want to take advantage of the significantly low rate; perhaps you want to lock in the existing low rate by changing your variable rate mortgage into a fixed rate mortgage. All these will help you make an informed decision. The worst you can do is to refinance for the sake of refinancing… you may end up with a deal you will regret for the rest of your life.

The next course of action would be to comparison shop. When doing this, ensure you factor in the whole package and not just a specific aspect of the mortgage. A lender may offer you a significantly low rate but may expect you to make a balloon payment bi-annually or annually. Another lender could have the low rates but have a very expensive closing cost. Thus, it pays to understand the whole package so as to decide the loan that is perfect for you.

Seek pre-approval from several lenders – when comparison shopping for a refinance mortgage loan, it is always advisable to seek pre-approval from several mortgage lenders. You should however be very careful not to have the lenders request for your credit report as this can negatively hurt your report therefore reducing your otherwise good credit score. The best thing to do here is to only authorize the lenders who have the best rates in the market to pull your credit report.

Consider the closing costs and interest rates – another very important deciding factor is the closing costs, as well as the interest rates offered on the new mortgage loan. It isn’t uncommon to find a company extending very low interest rates but the charges and fees are nothing but hefty. The best way to go about here is to find out whether what you will end up saving by refinancing your current mortgage can negate the closing costs charges within the period of time you plan to live within your home.

Confirm the pre-payment penalties with your existing lender. It happens that in the terms and conditions of some mortgage loans, when you pay off the debt early enough, you may incur some pre-payment penalty equal to almost 6 months of the total amount of interest you would have paid. If you will end up paying more than the little you would have gained from the new loan, you are better off sticking with your old mortgage loan.

About the Author: NVA Admin