Rethinking refinancing

Low interest rates make refinancing appealing. Do you know how to get the best deal?
Deciding when to refinance your home can be a tricky decision. While the financial benefits of dropping your interest rates a few points are apparent, the path to refinance is strewn with unexpected fees and potentially costly choices. The best way to really profit from a refinance is to carefully evaluate your plans and options before signing on the dotted line.


There are three main reasons why you would want to investigate refinancing your home. The first is to cut costs by lowering your loan's interest rate. The second is to choose a different type of loan that better suits your financial goals and the third is to cash out your home equity. When interest rates are low, a popular reason to refinance is to replace an existing mortgage with a lower interest rate. Here are some tips from TrueCredit about getting more bang for your refinancing buck:

1. Do the math - Determining the costs and benefits is often the hardest part of the refinancing process. General advice states that you should refinance if you can get a rate that is at least two percentage points lower than your existing mortgage. However, this rule doesn't always bode true and it makes sense to do more thorough calculations before deciding. You can estimate how long it will take you to break even after a refinance by dividing the refinancing cost (including points, insurance and prepayment penalties) by your estimated monthly savings with the new loan. If you plan to stay in your home longer than the amount of time it will take you to break even, then refinancing is probably a good idea.
   


2. Explore your options - Straightforward refinancing works for a lot of people, but it is not necessarily the best solution for everyone. Evaluate your goals. If you are planning on selling your home within a year, it makes more sense to hang on to the mortgage you already have. You may be able to negotiate a term extension with a lender if you have a large balloon payment approaching. If you are stressed out by the fickle monthly bills with your adjustable rate mortgages, you may want to switch to a fixed rate loan. Make sure you keep your desires in mind while shopping for a new loan.
   


3. Learn the business - Thinking like a lender will help you improve your chances of a truly great refinance deal. Familiarize yourself with their industry and its lingo and you'll feel more secure negotiating with a lender. The Mortgage Bankers Association of America has a wealth of information online at www.mbaa.org. Apply your knowledge by asking for a copy of your loan documents to take home and review a few days before they are due. This way you will have time to read the small print and research anything that you may not understand.
   


4. Shop around - Despite the fact that you have had a loan with them before, your current lender may not have the best rates for you. Look around for the best offer but be aware that some loans may sound too good to be true. Low points or interest rates may not be such a great deal when you add up all the extra costs. Be sure to do the math with each offer you get. Use your knowledge of your refinancing options to shop around for the best rate possible. Refinancing a home is a big decision but if you are equipped with the right information you could save thousands.