What Is Refinancing?
Refinancing 101
Every 3-5 years American's are refinancing. But, what is refinancing going to cost in the long run? Before refinancing you should know: • How to
shop for a deal
• What to anticipate in
closing costs and fees
• And, if you’ll really save any money Too often, refinancing is nothing more than just "pressing the reset button." It's a win for the lender and a lose for the home-buyer. If you’ve paid 10 years on a 30-year mortgage, and you want to refinance into another 30-year mortgage to get a cheaper payment, be sure to
run some numbers
to determine how 30 more years of mortgage payments will affect your current and future budgets. Here’s what you should know before you press the reset button.
What is Refinancing?
Refinancing is basically taking out a new loan to replace an old one and usually comes with all the expenses that go with a new loan. Before you refinance you should be sure of the long-term results of this financial decision. Here are some questions to ask: Why should I Refinance?
Refinancing won’t reduce your debt, it just restructures it, so be sure you have a clear understanding about what it is you want to achieve with the refinancing options you're considering.
Can I Refinance?
Whether or not you’ll even be able to refinance depends on a number of factors: - Your loan-to-value ratio – the amount of equity you have in your home compared to the current value of your home.
- Your home’s value – Most single-family homes today need to conform with Fannie Mae and Freddie Mac limits.
- Your credit score – Currently a credit score of 740 or above gets you the best loan terms. A score below 620 you’re unlikely to get any loan unless it’s FHA/VA.
- Paperwork – Banks want a lot more information than they used to before approving a refinance. Be prepared by collecting your pay stubs, bank statements, brokerage statements, and your tax returns.
You can keep track of your credit by checking your free credit report from all three bureaus once a year at
www.annualcreditreport.com.
Should I refinance?
Mortgage refinance options usually make sense if you can lower your interest rate by at least two points. But the most important question to ask is – how long will it take to break even?
What to Beware Of
- You may need as much as 20-percent equity in your home to refinance. That percentage is determined by the value of your home.
- Before contacting a loan officer, get a rough estimate of your home’s value by contacting a real estate agent or by visiting a realty Web site such as
http://www.zillow.com/.
- If you owe more than your home is worth, or, given today’s economy, your home value has fallen, you may not qualify for a refinance loan.
- Or, if your home value has fallen too much, you may qualify but will have to pay extra costs.
- Lenders that promise “no points, no closing costs.” No loan is free. You will have to pay for a home appraisal even if you don’t end up qualifying for the loan.
- If you have more than one mortgage on your home, the second mortgage lender must agree that the second mortgage will be secondary to the new loan – meaning the second mortgage remains the “second payoff” loan. Some lenders will not do this.
- Chronic refinancing. Typically you want to refinance only once (if at all) on your current mortgage.
For more detailed information, read an article by Real Estate expert and TODAY contributor Barbara Corcoran, the founder of real estate business, The Corcoran Group at:
http://today.msnbc.msn.com
So, what is refinancing really going to do for you? My advice is to take great care with your refinancing options to avoid a financial crisis down the road. To see how you can pay your mortgage and any other debt off much sooner than you thought possible, without having to venture into refinancing or any of the options I've mentioned, you can
run your own analysis.
It’s free, your information is secure, and there’s no obligation.
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