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How to Refinance Mortgage





After the housing market collapse in 2008 and homes values took a nose dive, many borrowers found themselves saddled with 30-year fixed rate loans that were significantly above prevailing mortgage rates or adjustable rate mortgages that sent their monthly mortgage payments through the roof.

Some people were able to take advantage of historic low mortgage interest rates and refinance their mortgages, but far fewer than needed to help revive the housing market. From mid-2009 and 2011, completed application for mortgage refinancing accounted for more than 50 percent of all mortgage applications.

With the recent surge in the average mortgage rate, many borrowers are considering refinancing their home loan before bigger interest rate hikes. Before you make your final decision, here are some factors to help you clarify your options and make the best choice for your situation.

Time in the home

The standard used by many industry experts is that you should only refinance if the prevailing interest rate in at least one percentage point below your current mortgage rate. Pay particular attention to this wisdom if you do not intend to remain in your home much longer.

For example, if you intend to relocate to another city for employment or other reasons, closing costs, taxes and other expenses could result in you taking a financial loss.

Use the Refinance Mortgage Calculator to run various scenarios to help you make a decision. Weigh how much you save against the time takes to recover the cost of refinancing your mortgage. You can expect closing cost to range from 3% to 6% of the loan amount.

Check your credit report

Your credit score will make a significant difference in determining what interest rates you get quoted when apply to refinance your mortgage.You need to obtain a copy of your credit report and check it for accuracy and errors. According to one industry expert, 75 percent to 80 percent of credit reports contain errors and other inaccuracies.

Write a letter to the credit agency and ask them to correct wrong addresses, job history, name misspellings or outdated information on the report.

Do not open up other credit before you secure mortgage refinancing to avoid lowering your credit score.

Prepare employment and income documentation

There are new safeguards put in place by the Consumer Financial Protection Bureau to ensure that many of the fraudulent practices prevalent during the boom leading up to the housing and mortgage market downfall are no longer in play.

In the aftermaths, many lenders tighten their underwriting process. Borrowers should call lenders in advance to determine what paperwork they require for a mortgage refinance.

Here a list to get you started:

  • Employment and income information: Gather documents that will answer questions about your employment, including, where you work, the length of time on the job, time in the industry, annual income and proof of stable employment or income. At minimum, you will need a current W2 and two years of income tax returns.
  • Financial data: Pull together checking account, savings and other financial statements. This will need to show bank balances for the last six months and the source of any money you need to pay toward closing costs.

From your monthly statements from your creditors, create a list of debts, the minimum monthly payment necessary to satisfy each item, actual monthly payment applied to each debt debts. Total your debts and figure out much you pay toward credit cards and your car loan.

Self-employed borrowers need to contact each lender to find out what documents they will need to prove their income as well as other financial information.

Evaluate mortgage products

The traditional 30-year, fixed rate mortgage makes the best choice for most borrowers looking for stability and predictability with their monthly mortgage payments. Many lenders also offer 10- and 20-year products.

Mortgage lenders are starting to offer more products and flexibility. For example, if you intend to stay in the home for just a few years, you may want to evaluate adjustable-rate mortgages that have limit on interest rate increases a favorable cap on increases.

With home price appreciation, many homeowners have increase home equity and may want a cash-out mortgage to use for other purposes. You can use this RefinanceMortgage calculator to see how much of that equity you can turn into cash.

Home Affordable Refinance Program (HARP)

Homeowners who apply to refinance under the HARP may qualify to refinance under less stringent credit requirements.This federally-sponsored program gives lenders the incentive to refinance homeowners out of loans with high interest rates or adjustable-rate mortgage, into mortgages at today’s low rates.

To qualify, the borrower must meet the following conditions:

  • Have a loan insured by Fannie Mae or Freddie Mac on or before May 31, 2009
  • Be current with existing mortgage payments
  • Have sufficient income to afford the new monthly loan payments

Last year, the Federal Housing Finance Administration eliminated the loan-to-value ratio requirements for HARP loans, which makes it easier for more homeowners to refinance.Although the underwriting is not as stringent for mortgage refinances under HARP, the actual program can vary between lenders.

Borrowers do not have to refinance their loans with their current bank.

Shop around for the best deal

Give yourself the time to gather information and shop around for lenders with the best rates, terms and lowest fees. The lowest interest rates are reserved for customers with the best credit scores. However, you can negotiate everything including rates and fees.

In recent year “upfront” lender shave become more prevalent. These lenders will disclose their fees base on a minimal amount of information—which preserves your anonymity. After you check out other lender, go to your existing lender and bargain for the best rate and fees based on what you learned from your research.

If your bank wants to keep your business, it will likely make you a better offer by giving you a lower interest rate, or by lowering or completely eliminating some of the costs of mortgage refinancing.

Make sure that you are driving the refinance process and not a lender who solicits your with enticing offers. You can work with a mortgage broker if you want to avoid approaching and comparing a bunch of lenders. Check the broker’s knowledge of the market and professional credentials. Avoid mortgage brokers that charges have excessive fees.

Which Loan Is Better Mortgage Calculator can help you compare mortgage products side-by-side.





More About Mortgage Refinance
Current Interest Rates
PRODUCT +/- Rate Last week
30 year fixed Arrow 4.09% 4.16%
15 year fixed Arrow 3.25% 3.30%
5/1 ARM Arrow 3.28% 3.36%
PRODUCT +/- Rate Last week
30 year fixed refi Arrow 4.09% 4.17%
15 year fixed refi Arrow 3.25% 3.34%
10 year fixed refi Arrow 3.15% 3.18%
PRODUCT +/- Rate Last week
60 month used car loan Arrow 3.20% 3.20%
48 month used car loan Arrow 3.18% 3.19%
60 month new car loan Arrow 3.44% 3.44%
PRODUCT +/- Yield Last week
6 Month CD Arrow 0.75% 0.71%
1 Year CD Arrow 1.24% 1.24%
2 Year CD Arrow 1.41% 1.41%
MMA and SAVINGS 0.58%
$10k MMA 0.57%
Interest Checking 0.43%
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