Especially recently, refinancing a home mortgage has been a very popular option for homeowners. It can be a easy method to obtain some money and at the same time get a lower monthly mortgage payment. So how does refinancing your home loan work? Here are 5 easy steps to start you in the proper direction:

1)Figure out if it is the right time to refinance your home mortgage. Typically, you should only refinance a home for the correct reasons and at the correct time. A good rule of thumb to follow is that when interest rates are lower than your rates by 2% or more. Other factors that need to be considered are the length of time remaining on your mortgage, the balance remaining, your monthly expenses, how long you plan on staying in your home, your credit score, and so on. If you just go blindly into a mortgage refinance and it is the wrong time, and with the wrong loan, it can cost you thousands in unnecessary fees and expenses. If it is done wrong it can end up costing you even more than your current home loan does. Say for example you were going to be moving in a year or two. In this case a refinance would be a waste of money, time, and resources.

2)There are plenty of free and easy to use mortgage calculator that are available online which can help you see the potential savings compared to your current mortgage terms. Compare the monthly costs with each loan type, and different amounts and lengths to determine the best choices for your personal financial situation. Do not forget to account for closing costs and fees and other charges.

3)If your calculations looked very appealing to you then consider looking over your options. Each mortgage lender and bank have different terms, rates, and conditions. Sometimes one will offer you a much better deal then another, so it pays to shop around. Also, think about if you would like to get a ARM loan (Adjustable Rate Mortgage) or a fixed rate loan. Your needs will determine which home loan is correct for you.

4)Be sure to carefully pay close attention to any fees or closing costs associated with refinancing a home mortgage. The fees can and do vary greatly from lender to lender so choosing accordingly and shopping around is a must. Sometimes a lender may offer lower interest rates, but add on more points, so make sure you take all of the factors of potential refinance options before deciding.

5)If possible it is generally recommended that you try to keep the length of the new refinanced mortgage the same as your old mortgage. You do not want to have to pay for another 30 years again if you have already paid on the home for 10 years. The payments may not be as low but the overall savings from the interest will be substantially more.

Refinancing a home mortgage can be a very beneficial thing for many homeowners to do. However, if you refinance the wrong way, it will cost you thousands of dollars in unneeded fees, costs, and expenses, and maybe even your home. Make sure you get the best refinancing deal possible on your home and do some research and legwork to ensure it happens.

-M Petrone

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