The Process Of Mortgage Refinance
Refinancing your home mortgage or mortgage refi as sometimes known
, is getting a second mortgage on your home. It is basically applying for a new loan with your home as collateral in order to pay for your original home loan. By doing so, you reduce the monthly payment you have to make to your lender and extend the term of your loan. Before you even decide to refinance your home you might first want to understand the process of mortgage refi starting from educating yourself on the actual application for the loan.
Generally, it may be a good idea for you to start with educating yourself on the types of
mortgage refinance options available for you. In essence, there are two types of mortgage refinancing. The first is cash-out refinancing and the second is home equity loan. Cash-out refinancing is when you refinance your home mortgage for more than the balance on your first mortgage, usually at a lower interest rate than that for home equity loans. A home equity loan is a loan that is based on the difference between the market value of your home and the balance that you still owe on your mortgage. Determining the type of mortgage refinance that suits your particular financial situation requires you to evaluate your own personal finances and see which type is more applicable to your situation.
You might also want to see if it is the right time for you to refinance. Generally a good time for refinancing will be when the market interest rate is lower than your existing interest rate by 0.5% to 2%. However, this may not be the only indicator. Sometimes, mortgage companies may charge you certain fees that you may end up having to pay so much more than your current interest rate. It may also be a good time to refinance if you are currently on an adjustable rate mortgage and your adjustment period is almost up. Normally interest rates tend to increase and not decrease. Therefore, if your adjustment period is almost over, it might be a good time to convert your adjustable rate mortgage to a fixed rate second mortgage at a considerably low interest rate.
Before applying for a
mortgage refinance, it may be a good idea for you to check your credit report to see if there is any error that needs to be corrected. Lenders are bound to check your credit history, to see if you belong to the high risk debtor category. If you do, chances are they might impose a higher interest rate and may not waive any fees at all. However, if your credit score is impressive, you may be able to refinance your home at a lower interest rate and may even be able to get your lender to waive some of the fees and charges.
You may want to take note that errors in credit reports are common. So, it may be important to check that the listing accounts in your credit report all belong to you and not somebody else. You might also want to list down all the late payments, defaulted loans or high credit card balances, so you will be able to fix your credit scores by paying all these creditors. You might find this exercise a bit tedious and boring but in the long run it will benefit you.
Once you have weighed in all your options you may proceed with applying for the loan of your choice from the lender of your choice. Although some experts may advise you to return to your current lender to refinance your home, it may be wise to consider other lenders as well because they might actually offer you a better deal.
by: Ask Bill
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