Important Tips on Refinancing Your Mortgage
Refinancing your mortgage simply means applying for a loan all over again. What you do is you replace the old loan with a new one which has interest rates and terms that work to your advantage. The new loan pays off the existing debt, so the debt is not wiped off.
When you refinance, you pretty much re-start the clock, which gives you more time to pay off your loan. Since the amount you need to pay off is smaller (you have been paying your mortgage regularly, so the total amount to be paid off would be smaller) and you have more time to pay off the loan, you would actually be paying much less per month, thus easing your financial burden.
The most common loans that are refinanced are home loans or mortgages. Paying a mortgage is one of the top expenses that many American homeowners have. The reason why many homeowners have their mortgages refinanced is to save money on mortgage payments.
However, you need to think very carefully before refinance your home. Refinancing your mortgage is not as simple as it sounds. It is a time-consuming and sometimes expensive affair and your loan application may not even be approved. So you need to understand all details about your current loan as well as the possible options for refinancing before you make any decision.
Here are a few tips to help you get the best possible loan:
See if you will be approved for a refinance first
If you have a mortgage that is insured by the Federal Housing Administration or is guaranteed/owned by Freddie Mac or Fannie Mae, then there is a good chance for you to get approved for a refinance – even if you have an underwater mortgage.
Is your credit rating good enough for refinancing your mortgage?
Check your credit rating at myFICO to make sure that there are no errors in your rating. It is not uncommon for there to be errors in a person’s credit history, so please ensure you check it and report the ones you do find. Additionally, before you apply for refinancing, make sure your credit rating is also good.
If you are planning to apply for a loan, do not apply for a new credit card or any other loan. Do not overuse your credit card – and definitely don’t max it out. All these things can negatively impact your credit scores.
Look at multiple loan options
Do not go for the first attractive loan option you get. Take your time to shop around and see which loans have the best interest rates and lowest fees – and check the fine print. However, be very careful of creditors that offer your rates that are way lower than the competition’s.These could be baiting tactics to hook you in and then, once the deal is closed, you get slapped with really steep closing costs. A lender is only committed to a rate after it has been locked-in.
Make sure you have all your documents in place. Additionally, make sure you get everything in writing from the lending company.
Check closing costs and paperwork before the final closing
Make sure you have checked all costs, so you know exactly what you’re paying for. Nothing should come as a surprise to you.
Also make sure that you check all the paperwork – read the loan document carefully (including the fine print) to make sure that there are no grey areas that could cause you trouble later.
Make sure you do all your homework before you finalize any loan contract.