If you’re planning to refinance, here are a few tips you should know as you start your search for a new mortgage:
* Refresh your understanding of the market. If you took out your first mortgage quite a while ago, you may not be aware of the new kinds of mortgages available to lenders who want to refinance in today’s market. And if you took out your mortgage two or three years ago, during the boom, you may not be aware of the changes the credit crunch has brought to the mortgage industry.
* Don’t be in a hurry. Trying to refinance quickly opens you to predation by lenders who will be quite happy to give you a lovely new mortgage right away… at a price. Take your time and learn who the reputable mortgage lenders are.
* Timing is key. Taking advantage ofmarket fluctuations like the low interest rates prevalent in June 2009 is essential to a good refinance. So is your personal timing: How much can you afford to put down right now? How much longer do you plan to keep the house? Would waiting another few months put you in a stronger financial position for a refinance, or are conditions for refinancing optimal right away?
* Consider new options. The market is flush with new mortgage types. You may find that a nontraditional mortgage, like a balloon mortgage, is the ideal kind of mortgage for your refinance.
* Learn the danger signs. Refinance fees that add up to more than 1% of the total mortgage, yield spread premiums, and restrictions on when you can repay or refinance are all warning signs that you have been offered a bad mortgage. So are several other easy to spot signs. Leanr what they are and how to cut through the jargon to see them, and radically improve your chances of getting a good mortgage.
* Decide which you want more: low monthly payments, or a low total payment. You can’t have both. On the other hand, if you know what you need, you can get a great deal on one.
* Do all the math beforehand. Find a mortgage calculator online and play with the numbers so you understand how each variable in the refinance affects all the others. For instance, doubling the loan term for the refinance does not halve the monthly payments, but a small drop in the interest rate creates an impressive change in the final amount you will pay, thanks to the power of compounding.
As you research before your refinance, keep these tips in mind. A little preparation beforehand will make certain that all the surprises in your refinance are good ones.