Mortgage refinancing often is a complex process, but you can make it easy if you adopt specific measures and do your homework in advance. You also should talk to an independent mortgage broker to get more information about the refinancing process. A mortgage refinancing agreement will bind you for years, so take the time to learn the basics, do your homework, set clear goals, and compare mortgage rates and related services.
Know the Basics
Before refinancing your mortgage, it is important that you know the basics of the refinancing process. Simply put, refinancing means taking out a new mortgage to pay off the existing mortgage, typically with a lower rate or better terms and conditions. Think of it as a credit card balance transfer in which you swap debt on an existing card with a new loan that has a small or no annual percentage rate for a specific period.
A mortgage, be it initial or refinanced, is a debt you must repay in accordance with the mortgage covenant, and therefore finance people include it in your liabilities. Debts are also known as financial obligations or commitments, and they run the gamut from mortgages to student loans and credit card balances. Liabilities – the other name for debts – reduce your net worth, while assets increase it.
Do Your Homework
A mortgage specialist I've known for years says that doing your homework before refinancing can help you set the right processes that ultimately would elevate your expectations and force, in a sense, your interlocutors to perform much better. For example, if your mortgage broker sees that you have read specific legislation and know your rights and responsibilities in the refinancing process, he or she might think twice before saying something that is incomplete or untrue. Try also to contact your state's Department of Financial Services and the local Better Business Bureau branch to learn more about current mortgage refinancing legislation as well as reputable mortgage lenders who are registered with state and federal authorities.
Talk to a Mortgage Broker
Talk to an independent mortgage broker to figure out your refinancing options. To find out the best yet affordable mortgage brokers in your area, contact the National Association of Mortgage Brokers, your local Better Business Bureau branch, and your state's Department of Financial Services. A mortgage broker can help you put the right paperwork together, educate you on refinancing trends, put you in contact with lenders and help you get a good refinancing deal.
Have Clear Goals
Before embarking on the refinancing bandwagon, set clear goals. Flex your intellectual muscle and figure out why you want to refinance, what interest rate you don't want to exceed, and fees that are associated with the refinancing process. Don't forget also to check your credit file before refinancing, to make sure there are no inaccuracies or fraudulent data in there that might ruin your whole refinancing efforts. Contact the top three credit bureaus – TransUnion, Equifax and Experian – to get more information about your credit report and how to receive a free copy.
When it comes to mortgage refinancing, good ideas often do not require much investment but may generate cash savings rapidly. This is why you must know the specific goal you are pursuing through the refinancing process. Goals that personal-finance people judge acceptable include:
- Reducing the interest expense on the current mortgage
- Increasing your credit score by reducing some types of debt
- Using the extra cash savings to pay off short-term, higher-rate loans like personal loans and credit card balances
Don't Make These Mistakes
In the refinancing process, sometimes you would need to welcome new ideas and approaches, while at other times you may need to balk at ideas that don't mesh with your refinancing goals, or seem fishy. Mistakes commonly seen in the mortgage refinancing process include underestimating closing costs, ineffective debt consolidation and the inadequate extension of a loan term. For example, say you think refinancing would cut your monthly mortgage payments by $500, and you current mortgage matures in 25 years. If the closing costs amount to $12,000 – or two years' worth of interest savings ($500 times 12 months times 2) – you would be losing cash if you refinance again within 24 months.
Shop Around – And Compare
I've used the Mortgage Professor tool to shop around for mortgages, and I find it useful, especially if the property's value is on the higher end of the income spectrum. The site does a good job reviewing mortgage refinancing providers along with a basic explanation of features you should heed when hopping on the refinancing train. These features are categorized as pricing accuracy and user convenience. For pricing category, pay attention to things like posted prices, price monitoring, total lender charges, and adjusted-rate mortgage (ARM) risk features. For user convenience things to check include the ability to receive rate alerts, indication of mortgage-related insurance quotes, anonymous shopping, and decision guidance at each decision point. Summary
Before refinancing your existing mortgage, do your homework, talk to the right people and be prepared. That way, no mortgage broker would take advantage of you and provide unclear or incomplete information, or would coax you into negotiating and signing a refinancing deal that is not in sync with your objectives. Other things you must do include setting clear goals, shopping around and avoiding costly mistakes.