Refinancing Advice

When To Refinance

Many homeowners are taking advantage of the extremely favorable interest rates to refinance their mortgage. With an interest rate below 4 percent, owners are inclined to take advantage of these rates and capitalize on the fixed rate mortgage products.

Despite the attractive fixed rates, refinancing must always be a well-considered option. Due to the recent changes in the Truth in Lending Act, lenders are obligated to provide applicants with full disclosure documentation within three days of an application to refinance.

This documentation must include the APR for the new mortgage and all feeds, like the cost of required mortgage insurance and points charged by the lender. Borrowers should compare these disclosures for an apples-to-apples comparison.

Typically, borrowers should refinance no more than once. Because mortgage initiation fees cost additional money, these expenses must be considered as out-of-pocket costs. When comparing the cost of the existing loan to refinancing, this is just one of several factors that must be considered.

There are three main reasons borrowers consider when they refinance.

• Converting an Adjustable Rate Mortgage to a Fixed Rate Mortgage. The stability and very favorable APR's with a fixed rate mortgage gives the borrower a proven monthly payment that will not change during the life of the mortgage.
• Refinancing often provides the borrower the opportunity to capture capital for other ventures or purchases.
• Sometimes, borrowers refinance to change the term of the mortgage. Borrowers can lower their monthly payment with a fixed rate mortgage for a longer term or choose to retire the obligation in a shorter term.Borrowers may opt for refinancing because today’s interest rates are significantly lower.

Homeowners should make sure they clearly understand the costs of refinancing. With refinancing, borrowers will have to pay for application fees, an appraisal, a title search and attorney's fees. These expenditures can amount to between 3% and 6%.

These factors might help you to decide whether to refinance or not.

• How long will it be before the current mortgage is retired?
• What are the actual savings from refinancing?
• Are you willing to take a short-term loss (expense to refinance) for a long-term interest reduction?
• Do you want to be sure the mortgage is retired at a certain time such as by retirement?
• Are you using the refinancing to use proceeds to consolidate other debts?

Borrowers may want to consolidate their first and second mortgage balances into a new refinanced loan.

Most borrowers shy away from extending the term of the mortgage. However, many borrowers do not have a choicer. Persons with unexpected expenses like health, divorce, lower household income than anticipated might use the household equity to meet these expenses.

If the borrower is convinced that refinancing is the right direction, this is certainly the best time in many years to procure a fixed rate, low interest refinanced mortgage.

If the borrower is convinced that refinancing is the right direction, this is certainly the best time in many years to procure a rate mortgage. When this is the right solution, borrowers should apply at a minimum of three mortgage lenders.

While Truth In Lending is used to make sure the borrower makes an informed decision, it does not regulate what lenders can charge for the mortgage. Because this is a major financial transaction, the borrower can eliminate surprises by comparison shopping.