Applications for mortgage refinancing are hitting record highs as interest rates reach record lows. However, that does not mean that a refinance is the correct decision for everyone.
The reality of the situation is that only around 30% of people who apply for a mortgage refinance relly should not be, according to the owner of ABC Mortgage in Minnesota. People tend to get caught up in the hype of the ultra low rates plastered all over the place without thinking the whole thing through.
One of the most common reasons refinancing does not make sense is if the homwowner will not be living in the house for the savings from refinancing to out weigh the costs associated with gettting the loan. (We will go over the costs later)
Here are some additional signs that a mortgage refinance is not the correct choice.
-If you are over half way through your mortgage payments, a refinance into a new 30 year loan may only cost you more in the long run.
-Has your credit declined since you got your mortgage? If you have run up high debts, missed some mortgage payments, pushed your credit limits to the max, and hurt your credit in any way, you may not qualify for the super attractive rates offered everywhere.
-Does your home have any equity left? To assure yourself the best rates, you need to borrow less than 80% of the current market value of your home. If you owe more than 80% of the total value of your home currently, a refinance may not work out for you financially in the long run.
-Refinancing to relieve another credit issue. A lot of homeowners wish to refinance so that they can turn what is supposed to be a short term debt such as credit or car loans. This is a bad solution to those problems. This just makes that debt more expensive and long term. You do not want to risk your entire home for some credit card debt or something similar or compromise what you do have should you ever need to file for bankruptcy.
Set financial goals, educate your self on refinancing, and do the math.
How to know if you should refinance.
Define some goals. Do you want to build equity faster, lower monthly mortgage payments shorten the loan, get cash for home improvements? Each of these goals will determine the type of loans and what terms they have. Some people actually go from say a 30 year mortgage to a 15 year mortgage. Even though their payments increase, they save thousands in the long term. It is even possible to refinance at a lower rate and still walk away with a few thousand dollars.
Learn about refinancing
You should learn as much as you can about how the home mortgage refinance process works. You should get a copy of your own credit report before you start applying so you know what the lenders know and their can be no secrets. It is a good decision to start with your current mortgage lender, as you already do business with him and he will be most likely to give you the best rate, terms, or conditions. No matter what he quotes you or says, comparison shop their quote around to other lenders. See what they counter offer you with. Often they will try their hardest, and find a way, to lower the expenses for you to a bare minimum get your business. Take advantage of the internet to research different lenders. If you have troubled credit, I suggest working with a mortgage broker who has the connections you need to get the best deal possible. Even though they cost money, you will make this back in the long run. Ask about all the fees and costs associated with the loan. Make sure the quotes you see have everything included in them. Try to get the rate quotes on paper and signed so that they are locked in. Lenders do not have to disclose costs until 3 days before closing, but generally a good lender would tell you upfront the costs and fees associated.
Look at the numbers you come away with and do the math. If you could use the money every month, or see another need than refinance. If you stand to gain very little try not to refinance. You should wait it out and see if rates drop just a little more, than execute. Mortgage rates are near an all time low and a lot of people can save hundreds monthly through a mortgage refinance.
-M Petrone


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