Home Refinance Tips

Refinancing your home is essentially like taking out a second mortgage at a lower interest rate than offered by your existing mortgage loan. There are a number of reasons people refinance their home: lower interest rates, more financial freedom for necessary expenses like school tuition, bills, and other high-interest debt, better terms than their current loan, and more.

Refinancing your home can seem like a daunting process, but it doesn't have to be. If you ensure that you're educated about your options as a potential borrower and know the particulars of the process, refinancing your house will be easier than you think. Learning about the particulars isn't difficult; there's a wealth of resources available for those who are looking to refinance their home. Here are some tips to keep in mind as you're exploring your options:

  • Refinance rules and tax laws differ between jurisdictions; be aware of rules in your area.
    Each jurisdiction has different tax laws and rules for refinancing; check with a financial advisor or mortgage consultant to see the tax laws in your area, as well as best practice.
  • All mortgage refinancing providers are not equal.
    Shop around and find one with a decent history and record. There are many good companies available; email them or talk to a refinancing representative and find out what your options are.
  • Pay attention to the small print on any papers you sign during the process of refinancing.
    The Federal Truth in Lending Act mandates that loan providers must give you all information associated with the loan, including hidden fees and other costs. Nevertheless, read any document thoroughly before signing; if you are confused, hire a lawyer to do a read through.
  • If you're inclined to do so, use this mortgage calculator and do the math
    It's easy and will give you a better idea of what you're looking for and a ballpark figure for you to discuss with a mortgage refinancing specialist.
  • Before you refinance, consider the rates currently offered by providers.
    When you refinance, you want the available refinancing rates to be at least two to three percent lower than your current rate.
  • Make sure you'll bein residence for at least two years beforere financing.
    To avoid losing money on closing costs and fees, ensure that you're going to be in your home for at least two years after you refinance your home.
  • If you choose a fixed rate loan, you have numerous options.
    The most common fixed rate mortgages are set at 15, 30, and 40 year terms. If you choose to refinance with a 15 year mortgage, your interest rates will be lower, but your monthly payments will be higher and you may need a bigger down payment. If you choose the 30 year mortgage option, your monthly payments will be lower than a 15 year loan, but interest rates will not. If you choose a 40 year mortgage loan, you will have lower monthly payments and a lower down payment; conversely, higher interest rates may accrue over the period of the loan.
  • Choose the mortgage loan that works best for your situation.
    If you're planning on paying off the loan within a few years, an adjustable mortgage rate may be the way to go. They initially have lower interest rates than a fixed rate mortgage and lenders are more apt to give larger loans if you choose an ARM. The interest rate rises and falls according to the index; this means that payments will go up and down as well, which can be risky. On the other hand, a fixed rate mortgage may be best for someone who wants a long-term loan with slow, steady payments and an interest rate that doesn't change over the life of the loan. You can end up paying more than you would with an ARM in the long run, but there is no risk.