Refinancing "How-To's" Text Size:

Homeowners refinance the mortgages on their homes for many different reasons, including taking advantage of the increased value of their home, consolidating their debts, obtaining a fixed rate mortgage or finding a lower interest rate. If you've decided to refinance the mortgage on your home, there are several steps you should take.

General Considerations

Depending on the status of the financial markets at the time, you may want to refinance to try to replace the old mortgage with a new one. The primary consideration here is whether you can refinance at a lower interest rate and lower your monthly payments.

Procedure

Check the documents for your first mortgage. Sometimes mortgages have provisions which might make you think twice about refinancing. For example, if there is a high prepayment penalty for your current mortgage, refinancing may not be a good idea, and you should factor in the penalty when considering the value of refinancing.

Check your credit report. Prior to refinancing, you should review your credit report and correct any inaccuracies. The reason for doing so is that lenders usually base their offers on credit scores derived from credit reports. You can obtain a free credit report from the three main credit reporting agencies (see Free Annual Credit Reports). Errors in your credit report can impact your credit score, which could affect the interest rate you are offered on the refinanced mortgage, and it can take some time to resolve errors.

Shop Around and compare costs. In refinancing, it is important to obtain information from many different lenders. It is crucial for you to look at similar loans when comparing costs. Some questions of importance are as follows:

• Will you be required to pay points or fees to the lender or broker in connection with the loan?
• What is the annual percentage rate (APR) on the loan? The annual percentage rate takes into account the interest rate, as well as points, fees, and other costs associated with the loan. Looking at the APR makes it easier to compare your loan choices.
• Is it possible to obtain a breakdown of the costs for a loan? Do you understand the nature of each item? Are the charges negotiable?
• Is the interest rate fixed or adjustable? Which type better suits your needs?

Bargain. Once you obtain information from several different lenders, you should consider whether it is possible to bargain for an even better deal. It may be that the costs associated with the loan are negotiable, or that lenders will match or beat interest rates from other lenders.

Use Refinance Calculators. It's easy to find refinance calculators on the Internet. Such calculators provide a simple tool which allows you to determine the monetary benefit of refinancing at a particular rate of interest.

Questions for Your Attorney

• Why should I review my credit report before trying to refinance my mortgage?
• What kind of information should I obtain from lenders when I am refinancing my mortgage?
• Can I bargain with lenders to see if I can get a better deal?

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