Refinancing? Tips for making your best deal

Posted by  on Mar 22, 2012
 

Refinancing your home loan can be a useful tool for increasing cash flow, reducing mortgage payments and potentially providing cash for paying off high cost credit card and consumer debt. Qualifying for mortgage refinancing depends on factors including:

  1. Home equity: It's hard to refinance conventional loans with less than 20% home equity. You'd need mortgage insurance, and insurers' requirements are very strict.
  2. Closing costs: Mortgage rates aren't the only cost involved in refinancing your mortgage. Closing costs for refinancing typically amount to about one percent of your loan amount. Paying closing costs in cash keeps your payments lower.
  3. Credit score impact on savings: The best mortgage rates are only available to people with FICO scores of 700 or better. Higher credit scores mean lower mortgage rates and fewer points. One point is one percent of your refinance loan amount. Borrowers with credit problems are perceived as a higher risk to lenders and are required to pay more for home loans.

Refinancing: Finding your best deal

The Federal Trade Commission (FTC) encourages consumers to shop for their best mortgage deal. Comparing mortgage helps lower your financing cost. Request mortgage quotes from several sources:

  1. Request mortgage quotes from your bank or credit union. Ask loan officers about discounts for having multiple accounts such as checking, savings, consumer loans and a mortgage.
  2. Compare online mortgage quotes. Mortgage companies and other lenders provide mortgage quotes online; requesting multiple quotes allows for line-by-line comparison and helps with identifying excess costs and fees.
  3. Mortgage brokers work with multiple lenders and can obtain refinancing quotes for you. They can also help with determining the best type of refinancing based on your financial circumstances and needs.
  4. Although most borrowers refinance strictly for lowering their mortgage rates, it may be possible to get additional cash for debt consolidation or making home improvements.
  5. Don't be afraid to negotiate home loan terms including mortgage rates and lender fees. Third party vendor fees like title insurance may also be negotiable.

Ask questions and pay attention to your instincts to avoid problems and misunderstandings. Don't be pressured into accepting a home loan without comparing rates and loan terms elsewhere. Refinancing your mortgage is a major financial decision and it's important to be comfortable with all aspects the transaction.

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