Home Refinancing Tips

Home refinancing tips can be very helpful to homeowners considering whether or not to refinance their mortgage, but the decision to refinance is heavily based on person's situation and future goals. If timed just right, refinancing can save thousands of dollars, but it isn't for everyone and doesn't work for every situation. Choosing to refinance can cost a lot of money in and of itself. Closing fees, appraisals, title insurance can add up quickly and surmount any savings a homeowner might make in signing a new mortgage. Individuals should weight their personal situation carefully before following the latest advice or hottest tip. Home refinancing tips can help bring the situation into focus, but at the bottom line, if it doesn't save money or deepens debt, refinancing is not worth the effort.

Many people decide to refinance when interest rates are lower. Homeowners who chose an adjustable rate mortgage (ARM) on their first loan, may want to lock in at a fixed rate. Although ARMs are generally lower, they fluctuate over time with the changing index. By locking into a low fixed rate, when interest rates are low, borrowers never have to worry about it rising too high. Plus, a fixed mortgage stabilizes monthly payments, so individuals can better manage personal finances in their budgets. However, many home refinancing tips also state that the benefit depends on how long a homeowner plans to stay in the current house. Borrowers planning to move within three to five years will usually not benefit since ARMs are usually fixed for the first three-year period. Those who plan to stay in homes for longer periods of time do benefit from locking in at a low fixed rate. Another alternative would be to refinance every three to five years, keeping the lower rates with fixed periods. Individuals who originally financed under poor credit situations often choose to refinance when credit scores are have improved enough to qualify for lower rates. Home refinancing tips also suggest applying for approval for a government subsidized loan, even with lower credit scores or no credit history at all. However, approval is handled on a case-by-case basis. Increasing credit scores greatly reduce rates, payments and terms of the mortgage, enabling more money to be spent on debt reduction and other necessities.

Homeowners may also want to change the terms on their mortgages. Increasing monthly installments, shorten the term of the loan, saving hundreds on interest and building equity up much faster. Others prefer to stretch out the term of the loan to decrease monthly payments and free up extra money needed for other expenses. Doing this will usually increase the total payout of the loan, not saving any money at all in the long run. However, according to home refinancing tips, if a borrower is able to lock in at a lower interest rate, he or she can lower monthly payments without increasing the term of the contract. This option both combines the best of both worlds.

Home refinancing tips also include using equity to consolidate outstanding debt. Once a homeowner has built up some equity in the house, that equity can be borrowed against to pay back loans with higher interest rates. "Moreover he provided him cities, and possessions of flocks and herds in abundance: for God had given him substance very much." (2 Chronicles 32:29) Since home equity loans are secured against the property, interest rates are generally lower than most other loans. This can save the individual a lot of money in interest. Often referred to as second mortgages, these loans can replace several outstanding loans into one easy payment. However, people who take out home equity loans do so at great risk. Defaulting will cost them more than the loan. They will lose their home. Homeowners must carefully weigh the risk and make sure it is manageable before deciding.

Individuals who refinance can also get cash in the process to pay for a new car, college or other debt. This cash-out refinancing is not a second mortgage and usually carries a lower interest rate than a home equity loan. The amount is simply rolled over into the new mortgage with any fees and closing costs involved. There are many ways to cash-out during refinancing. Interest only loans allows the borrower to pay only the interest on the loan for a specified amount of time and is usually only available within the first few years of a mortgage. Many home refinancing tips advise using this time of financing for items that would increase in value at a higher rate than the equity in the house, such as high-end investments or home improvements that would drastically increase the market value. Individuals can borrow up to 95% of the property value in both ARM and fixed mortgage loans. If the housing market is increasing, although no payment is being made on the principal, equity is still being built up in the house. No document or low document loans often come with higher interest rates and are only extended to homeowners with good credit scores. They require minimal paperwork and usually attract borrowers whose salaries aren't consistent. On the other hand, no ratio loans are available to individuals who don't want to provide income for privacy reasons. These borrowers much have good income and a large amount of assets to cover extra costs.

Home refinancing tips can also aid homeowners in finding lenders. Financial advisors suggest shopping around for the best rates and securing a reputable lender who will disclose all fees in writing upfront. Make sure the lender is a member of the Better Business Bureau or a similar organization that calls for accountability. Before restructuring, make sure that the original loan does not carry any early payment or pre-payment fees. These can be very costly, adding up to six months worth of payments. Taking in financial tips and advice from professionals will help the process, but borrowers must take care to assess their individual situation before proceeding.