Are You Considering Re-
Financing?
Homeowners who are considering re-financing their home
may have a wealth of options available to them. However,
these same homeowners may find themselves feeling overwhelmed
by this wealth of options. This process doesn’t
have to be so difficult though. Homeowners can greatly
assist themselves in the process by taking a few simple
steps. First the homeowner should determine his refinancing
goals. Next the homeowner should consult with a re-financing
expert and finally the homeowner should be aware that
re-financing is not always the best solution.
Determine Your Goals for Re-Financing
The first step in any re-financing process should be
for the homeowner to determine his goals and why he is
considering re-financing. There are many different answers
to this question and none of the answers are necessarily
right or wrong. The most important thing is that the
homeowner is making a decision which helps him achieve
his financial goals. While there are no right or wrong
answer to why re-financing should be considered there
are, however, certain reasons for re-financing which
are very common. These reasons include:
* Reducing monthly mortgage payments
* Consolidating existing debts
* Reducing the amount of interest paid over the course
of the loan
* Repaying the loan quicker
* Gaining equity quicker
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Although the reasons listed above are not the only reason
homeowners might consider re-financing, they are some
of the most popular reasons. They are included in this
article for the purpose of getting the reader thinking.
The reader may find their mortgage re-financing strategy
fits into one of the above goals or they may have a completely
different reason for wanting to re-finance. The reason
for wanting to re-finance is not as important as determining
this reason. This is because a homeowner, or even a financial
advisor, will have a difficult time determining the best
re-financing option for a homeowner if he does not know
the goals of the homeowner.
Consult with a Re-Financing Expert
Once a homeowner has figured out why they want to re-finance,
the homeowner should consider meeting with a re-financing
expert to determine the best refinancing strategy. This
will likely be a strategy which is financially sound
but is also still geared to meeting the needs of the
homeowner.
Homeowners who feel as though they are particularly
well versed in the subject of re-financing might consider
skipping the option of consulting with a re-financing
expert. However, this is not recommended because even
the most educated homeowner may not be aware of the newest
re-financing options being offered by lenders.
While not understanding all the options may not seem
like a big deal, it can have a significant impact. Homeowners
may not even be aware of mistakes they are making but
they may here of friends who re-financed under similar
conditions and receive more favorable terms. Hearing
these scenarios can be quite disheartening for some homeowners
especially if they could have saved considerably more
while re-financing.
Consider Not Re-Financing as a Viable Option
Homeowners who are considering re-financing may realize
the importance of evaluating a number of different re-financing
options to determine which option is best but these same
homeowners may not realize they should also carefully
consider not re-financing as an option. This is often
referred to as the “do nothing” option because
it refers to the conditions which will exist if the homeowner
does not make a change in their mortgage situation.
For each re-financing option considered, the homeowner
should determine the estimated monthly payment, amount
of interest paid during the course of the loan, year
in which the loan will be fully repaid and the amount
of time the homeowner will have to remain in the home
to recoup closing costs associated with re-financing.
Homeowners should also determine these values for the
current mortgage. This can be very helpful for comparison
purposes. Homeowners can compare these results and often
the best option is quite clear from these numeric calculations.
However, if the analysis does not yield a clear cut answer,
the homeowner may have to evaluate secondary characteristics
to make the best possible decision.
Benefits of Re-Financing
There are a number of benefits which
may be associated with re-financing
a home. While there are some situations
where re-financing is not the right
decision, there are a host of benefits
which can be gained from re-financing
under favorable conditions. Some
of these benefits include lower monthly
payments, debt consolidation and
the ability to utilize the existing
equity in the home. Homeowners who
are considering re-financing should
consider each of these options with
their current financial situation
to determine whether or not they
wish to re-finance their home.
Lower Monthly Payments
For many homeowners the possibility
of lower monthly payments is a very
appealing benefit of re-financing.
Many homeowners live paycheck to
paycheck and for these homeowners
finding an opportunity to increase
their savings can be a monumental
feat. Homeowners who are able to
negotiate lower interest rates when
they re-finance their home will likely
see the benefit of lower monthly
mortgage payments resulting from
the decision to re-finance.
Each month homeowners submit a mortgage
payment. This payment is typically
used to repay a portion of the interest
as well as a portion of the principle
on the loan. Homeowners who are able
to refinance their loan at a lower
interest rate may see a decrease
in the amount they are paying in
both interest and principle. This
may be due to the lower interest
rate as well as the lower remaining
balance. When a home is re-financed,
a second mortgage is taken out to
repay the first mortgage. If the
existing mortgage was already a few
years old, it is likely the homeowner
already had some equity and had paid
off some of the previous principle
balance. This enables the homeowner
to take out a smaller mortgage when
they re-finance their home because
they are repaying a smaller debt
than the original purchase price
of the home.
Debt Consolidation
Some homeowners begin to investigate
re-financing for the purpose of debt
consolidation. This is especially
true for homeowners who have high
interest debts such as credit card
debts. A debt consolidation loan
enables the homeowner to use the
existing equity in their home as
collateral to secure a low interest
loan which is large enough to repay
the existing balance on the home
as well as a number of other debts
such as credit card debt, car loans,
student loans or any other debts
the homeowner may have.
When re-financing is done of the
purpose of debt consolidation there
is not always an overall increase
in savings. Those who are seeking
to consolidate their debts are often
struggling with their monthly payments
and are seeking an option which makes
it easier for the homeowner to manage
their monthly bills.
Additionally, debt consolidation
can also simplify the process of
paying monthly bills. Homeowners
who are apprehensive about participating
in monthly bill pay programs may
be overwhelmed by the amount of bills
they have to pay each month. Even
if the value of these bills is not
worrisome just the act of writing
several checks each month and ensuring
they are sent, on time, to the correct
location can be overwhelming. For
this reason, many homeowners often
re-finance their mortgage to minimize
the amount of payments they are making
each month.
Using the Existing Equity in the
Home
Another popular reason for re-financing
is to use the existing equity in
the home. Homeowners who have a considerable
amount of equity in their home may
find they are able to cash out some
of this equity for other purposes.
This may include making improvements
to the home, starting a business,
taking a dream vacation or pursuing
a higher degree of education. The
homeowner is not limited in how they
can use the equity in their home
and may re-finance a home equity
line of credit which can be used
for any purpose imaginable. A home
equity line of credit is different
from a loan because the funds are
not disbursed all at once. Rather
the funds are made available to the
homeowner and the homeowner can withdraw
these finds at anytime during the
draw period.
Checking
Mortgage Rates Online
Homeowners
who are planning to re-finance
their home may find the
Internet to be a very
worthwhile resource.
The Internet is useful
because it can give the
homeowner a wealth of
information as well as
the ability to compare
different rates from
different lenders at
their convenience. While
these options have made
re-financing a more convenient
process there is more
potential for danger.
However, homeowners who
exercise a small amount
of common sense in using
the Internet for re-financing
often find they are not
at any additional risk.
Comparison
Shop at Your Convenience
One
of the most popular advantages
to researching re-financing
online is the ability
to comparison shop at
the homeowner’s
convenience. This is
important because many
homeowners work long
hours and often find
they are not able to
meet with lenders during
regular business hours
because of job restraints.
The Internet, however,
is open 24 hours a day
and allows homeowners
to research their options,
make important calculations
or receive online quotes
at any time of the day
through the use of automated
systems.
Homeowners
can also take their time
comparing the quotes
they receive from these
lenders online instead
of feeling pressured
to provide an immediate
response. While homeowners
may have some additional
time available to them,
these same homeowners
should realize they do
need to act relatively
quickly to lock in estimates
they receive as interest
rates are often time
sensitive in nature and
cannot be guaranteed
for long periods of time.
Use
Only Reliable Resources
Homeowners
who are using the Internet
to research re-financing
options and obtain quotes
should carefully consider
their sources when making
important decisions regarding
the subject of re-financing.
Homeowners who stick
with well known lenders
and established websites
will not likely encounter
problems but those who
select a new lender may
be surprised by the results
of the re-financing attempt.
Homeowners
who are unsure about
the reliability of a
particular resource or
lender should do additional
research on the company.
One of the easiest ways
to do this is to consult
the Better Business Bureau
(BBB). The BBB may be
able to provide the homeowner
with valuable information
regarding the number
of previous complaints
against the company.
A company who has a large
number of unresolved
complaints should be
considered an unreliable
company. However, homeowners
should not assume companies
without a significant
number of complaints
are reputable unless
the company has been
in existence for a number
of years and is a member
of the BBB.
Homeowners
should also take care
not to be fooled by fancy
web design. A website
which looks very professional
is not necessarily a
website which is accurate
and informative. Many
skilled website designers
can create websites which
are both attractive and
professional looking.
These website designers
can also optimize a website
for particular mortgage
related keywords so users
find the page easily
when searching for these
terms but this does not
necessarily make the
website designer knowledgeable
about the subject to
re-financing.
Confirm
Loan Terms in Person
before Committing
While
shopping for re-financing
options online is certainly
easy and convenient,
homeowners should consider
completing the application
process either in person
or over the phone instead
of relying on an automated
system. While the Internet
is good for research
purposes, homeowners
can take advantage of
face to face meetings
or telephone conferences
to ask all of their relevant
questions. Asking all
of these questions will
help the homeowner to
ensure he fully understand
the loan terms as well
as all of his available
options.
Completing
the re-financing process
in person or over the
phone can also prevent
the homeowner from being
surprised by any elements
of the mortgage re-finance.
This may include additional
fees which are tacked
on during the processing
of the application, rates
which are only available
in certain situations
or other elements of
the re-financing agreement
which could significantly
impact the homeowner’s
decision making process.
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