Initial Steps For Refinancing Arm Mortgages
In todays low-interest market, one of the top reasons homeowners are seeking mortgage
refinancing is to get out of their current adjustable rate mortgages, or ARMs, and trade them in for a fixed rate loan. Interest rates that were so attractively low a few years ago are now beginning to go up, and homeowners are facing a choice: is it a good time to refinance their adjustable rate mortgage, or should they wait? The answer with interest rates at an all-time low, refinancing an adjustable rate mortgage in favor of a fixed rate mortgage makes sense for nearly every homeowner.
First, determine if refinancing your adjustable rate mortgage makes sense for you. When might it not make sense to refinance your mortgage? If your credit rating has decreased significantly since you took out your mortgage, you may be better off keeping the mortgage you have now. In fact, you likely will not be able to refinance with a traditional fixed rate mortgage if your credit score is low. Staying with an adjustable rate mortgage may also make sense if you plan on moving within the next year or two. Because refinancing involves closing costs and fees, refinancing when you plan to move in the near future can actually cost more than your higher interest rate.
If youre like the tens of thousands of homeowners who can benefit from switching to a fixed rate mortgage, the following steps can help make the refinancing process simpler and hassle-free:
Determine Your Equity
Most lenders require you to have at least 20 percent equity in your home. Equity is the difference between what you owe on your home and its value. If you know your current mortgage balance, the next step is to determine the value of your home. Home values have dropped significantly in the last couple of years, so if your original mortgage is based on a figure obtained when the market was at all-time highs a few years ago, you may be unpleasantly surprised by what you find out. The best way to determine an estimate of your homes value is to look in your local paper for listings of recent home closings. There are also online sites that may help in determining the value of your home, but their accuracy can vary significantly from one area to another.
Get a Copy of Your Credit Report
Every U.S. citizen is entitled to a free credit report each year, from each of the three major credit agencies: Experian, Equifax, and Transunion. Your credit report contains a history of your credit for the past seven years, including your payment history for any credit cards or bank loans, as well as any judgments issued against you. Lenders use credit reports, as well as your credit score (a numerical value based on your credit history) to determine if you are a good risk or a poor risk. And, they use that finding to determine the rate and loan terms theyre willing to offer you. Even a single late payment can have significant effects on your credit rating, so its important to check your report and dispute any errors you find to ensure you get the best rate and terms for your mortgage.
Shop around for the Best Rates and Terms
This is the age of the Internet, and the web is a great place to begin your search for competitive interest rates and terms. In addition to visiting individual sites for banks, credit unions, and other lenders, there are sites that allow you to compare a wide variety of lenders with a single click. Another good source for interest rate information is your local metropolitan Sunday paper. Most offer interest rate tables in their home sections. And dont forget to ask your neighbors, co-workers, friends, and family members for their recommendations.
Get Your Paperwork Together
When you decide its time to apply, youll need to provide lenders with some basic information, like tax returns, proof of income, and bank statements. Its a good idea to gather them before the application process, to help make the process go more smoothly.
Completing the Application
Once youve identified the best lender for your needs, its time to fill out an application. This is also a good time to use your negotiating skills to see if lenders will compete against each other to sweeten the terms. Dont be shy.
Like another financial decision, you need to take some time to consider your goals, review your credit rating, and shop around to see which rates you could qualify for. Then do the math. If youre like most people, you could save thousands of dollars by switching from an adjustable rate mortgage to a fixed rate mortgage with todays record low interest rates.
by: mor123
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