Tips on Refinancing Your Home

Refinancing is ideal for homeowners who purchased their homes when mortgage interest rates were higher, and for individuals who received an adjustable rate mortgage. In these instances, refinancing for a lower interest rate will lower monthly payments, or provide homeowners with a fixed mortgage rate. Fixed rates are more advantageous because your monthly payment on the home will remain the same throughout the duration of the loan.

#1 - When to Refinance?

Low interest rates and refinancing has been the topic of conversation for several years. When interest rates began to decline, many homeowners saw this as an opportunity to lower their mortgage payments and save money. However, refinancing is not a good move for everyone. Mortgage brokers and lenders generally recommend that homeowners wait until the current market rate is at least two points below their homes mortgage rate. Refinancing for a one point difference is not worthwhile because savings are insignificant, and not worth the closing costs and fees that accompany a refinance.

#2 – Is a Refinance Worthwhile?

Lenders have different refinance procedures, thus some may not include estimated closing costs in the quote or good faith estimate. Homeowner should request this information before agreeing to sign documents. If refinancing produces marginal savings and high fees, homeowners may forgo reducing their interest rates. On the other hand, individuals who intend to live in their home for many years may benefit from a refinance.

#3 – Negotiate and Compare

If considering refinancing your home, contact your current lender. In some cases, current lenders will waive selected fees such as title search fee, appraisal fee, and negotiate a "no-cost refinance." Of course, your current lender may not offer the best rates; thus, it is wise to shop around. Online mortgage brokers are a good choice because homeowners can receive multiple offers from a single application. Multiple offers afford the opportunity to compare rates and services of various lenders.

#4 – Building Equity

Homes must have enough equity to justify a new loan or refinance. On average, homeowners are encouraged to have an existing mortgage for at least two years before refinancing. This allows time for the property value to increase and for the home to gain equity.