Find Out How to Refinance Your Mortgage

Refinancing is a great way to utilize your equity to create a new mortgage loan from your existing one. Depending on your refinance plan, you can choose a plan to help with re-investing in your home, paying off debts, or using cash for an emergency. If you are unsure on how to refinance, here are some steps you can use to help you along the way.

Know What Determines Your Refinance Situation

conceptual image with piggy  bank, coin and houseOne of the first steps in knowing how to refinance is measuring your general situation like the size of a loan you’ll need. For example, if you need 3% or 6% of your mortgage, it’s recommended to have a solid down payment on your home. Remember, you are borrowing against your home, so that determines your new mortgage balance. Also, you have to take into consideration the length of your loan. For a longer refinance, you could end up with lower rates but a much bigger mortgage than you originally intended. Also, if you decide to do a shorter plan, you may end up with  higher rates, but pay your mortgage off faster. Also, take note of closing costs,  transaction fees, and even recourse debt (borrowers are responsible for costs after a default). Really measures your options on why you need to refinance. Don’t end up with multiple closing costs that affect your living situation. Despite your choice, you have to calculate all possibilities.

How to Refinance Your Home By Managing Your Money

In any financial situation, you have to take in account how this affects your money. A refinance situation utilizes money you’ve accumulated toward the principal balance of your home. It’s important that before you refinance you’ve built enough equity to really have a say so for your plan of action. Make wise decisions regarding your purchases that don’t affect your before and during your refinance situation. If you haven’t done a considerable down payment, then you may incur a fee such as private mortgage insurance (PMI), homeowner fees, and more. Additionally, if your loan-to-value ratio is more than 80% of the appraised value of the home, your lender will want you to pay the PMI. This also messes with your chance of refinancing.

See Whether or Not Your Home Needs to Be Appraised

For certain refinance situations, an appraisal is neccesary. Although, federally insured loans do not require an appraisal, a cash out refinance is the exception. Remember, lenders have the final say of determining whether you can refinance. Under a cash out refinance, you are under higher stipulation because more is at risk for the lender. A federally insured lender wants to see if your home meets the basic safety and health requirements. This definitely takes a bit of toll on you especially with the paperwork, the market values, and even repairs. However, you have more say so in this plan because you decide what to do with your equity. You can use your equity to get a cash sum. Also, you can re-invest in your home, pay off debts,  or finance your dream vacation. A streamline plan doesn’t allow you to get cash from your equity, but you won’t have to go through so much paperwork or pay a higher interest rate.

Compare Rates With Different Lenders

This is another key tip on how to refinance your mortgage. Banks may have different refinance rates on their sites, but the chance of gettting those may be very slim. Before you decide to go with a plan try to test some rates for the long and short term. Measure your additional costs such as living expenses, fees,  miscellaneous costs, etc.  This way you can come up with a more rounded prediction of what it’ll take to handle your new plan. Also, you can talk to your lenders and bankers to see their actual rates. Find a way you can get on good situation for both parties. Do your research to see if there are reviews on these lenders so you won’t end up in a bad financial situation. Save yourself a lot of grief by inquiring different suggestions.

Some homeowners don’t know how to refinance mainly because they are misinformed. There are a lot of resources such as quality lenders and bankers who will help you get started. However, it’s always great to do some of the work on your own to avoid a bad refinance. Give yourself time to think and  build equity before your final decision.

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