Earlier this year, we refinanced our mortgage to take advantage of today's low mortgage rates. Based on our experience, here are my top five tips for a successful refinance.
Before talking to lenders about refinancing a loan, I would identify my goals for the transaction and then prioritize them. Is my goal to lower my monthly payments as much as possible (if so, an adjustable rate mortgage may be the way to go), to minimize closing costs on the loan (for example, by avoiding paying points), to reduce the overall cost of the loan (maybe by refinancing to a shorter-term loan or not extending the term while lowering the rate), or to fix the rate on the loan (to avoid the risk of higher rates in the future on an adjustable rate loan)? I learned that being clear about what I wanted to accomplish from a mortgage refinance transaction made it easier for our lender to identify the right options for us to consider, saving us and her time and frustration.
Don't Be Afraid to Ask
One of our priorities when we refinanced was to get a no-closing-cost loan. I wasn't sure that this was a realistic expectation, but I identified it to our lender, along with lowering our monthly payments, as one of our top goals for a refinance. I was pleasantly surprised to be offered a great option that achieved both of our goals. The lesson I took from this experience is that homeowners shouldn't be afraid to ask for what they want. If their goals simply can't be achieved, they'll find out soon enough, but a good lender will work hard to try to make them happen or to offer reasonable alternatives.
We ended up refinancing with our existing lender and are very happy with the result. However, given the multitude of mortgage lenders today, I think that it makes sense for a homeowner looking to refinance to do some shopping around, if for no other reason than the peace of mind that he has done his homework and found the product that best satisfies his needs.
Use On-line Calculators
With the ready availability of online mortgage calculators on the Internet like the one at www.bankrate.com/calculators/mortgages, homeowners don't need to be real estate professionals or financial wizards to check out different mortgage scenarios. Using a mortgage calculator, a homeowner can determine monthly payments for a wide range of scenarios by changing interest rates, loan lengths and loan amounts, information that can help him estimate the potential savings from refinancing and the affordability of different loans.
Don't Be Deterred Because Rates Are Up
We didn't refinance when mortgage rates bottomed out, but that's okay. We still got a money-saving deal. With mortgage rates having risen this year, some homeowners may feel they have missed their opportunity to refinance. Not necessarily. By focusing on the potential benefits of refinancing at today's rates (which are still very low historically) and not on what might have been, many homeowners can still lock in big savings by refinancing.
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