Refinancing Your Mortgage

02/21/2011

Mortgage LoanIf mortgage refinancing becomes necessary, do you have the basic information and knowledge so you can choose the right option? This is an important undertaking and should not be based on wild assumptions but on very important considerations.

The first step is to get information on the going interest rate. Generally, this can be found on your loan documents or your financing company will have the necessary information. If your mortgage has variable rates, then you will not have an established rate, still it is also important to know this.

The next thing you have to do is know what rate will be given to you if you have your present mortgage restructured. After knowing the rates, do not take for granted that this will be the same rate that will be given to you. You should know the rates given your particular case. The lender should confirm that those will be the rates prior to applying for the refinancing. A lot of lending companies post very low rates in their advertisements, but come with certain stipulations which may not be applicable to you. You should also take extra precaution if they ask you to pay for fees straight away.

Evaluate the rate you are being given versus your present mortgage rate as well as the loan terms. Such as you might have a variable rate type of loan and you could be considering the advantage of getting a fixed rate mortgage to take refinancing into account although the difference in rates is not that much.

Generally, financial consultants will suggest that there should at least be a savings of 1.5 points on the interest rate to make refinancing viable. The reason for this is you will be spending for closing your present mortgage, appraisal fees and other incurred costs related to the processing of the refinancing loan. If your savings will not reach at least 1.5 points, then it will take some time before you can regain the money you spent on closing. However, this is not always true, especially if you are getting a lot better terms that what you currently have.

Finally, you have to take into account your upcoming plans. Will you likely be moving to a different location several years from now? You might also be looking for a new job which will require you to transfer to a new location. If you are just starting a family, chances are you would be needing more space in the next few years. If you believe that you will not be staying in your present home for more than two years, you might not need to consider refinancing because it will definitely take more than two years to recoup the money you will spend on closing.

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