There are two ways to refinance. The first way will leave you in a better financial state than you were before. The second way will leave you in a worse financial state. The difference between these two methods is simple: knowledge and information. In order to get a refinance that helps you out financially, you need to learn as much as you can about the process and what you can do to improve the financial benefits. Here are 8 how to refinance tips that may help you make a better choice.
Securing Financing with Your Finances
Before you ever begin the refinance process you want to take a good, hard look at your finances and clear up anything that might act as a red flag or reduce your credit score. You may not be able to completely clear the score, but any steps you take to improve it will only work to your benefit. Typically homeowners refinance to reduce the interest rate so you will want to be able to get the lowest rate possible.
Once you’ve learned a bit about how to refinance and you’ve started the process, take a step back from your spending and let it be for a minute. Lenders are assessing your risk by your financial snapshot. If you run off and make a big purchase, or even a few hundred dollar purchase that seems out of the ordinary, you may trigger a red flag that will bring your refinance to a screeching halt.
How to Refinance with the Best Lender
In the world of refinance, not every lender is created equal. So it’s a good rule of thumb to not take the financing from the first lender you get a quote from. Shop around, compare quotes, and from there decide which one works best for your situation. You don’t want to settle on your mortgage – you want the best there is for you.
When refinancing sometimes the devil is in the details. A quote may sound great and look great, but then you start to see the fees and the seeming benefits rapidly unravel. Find out what the fees are going to be with every lender you consider. Some of them are up front about this, others you’re going to have to ask a lot of questions to figure it out, but make sure you do what it takes to learn what the fees are.
Sometimes after shopping around you’ll find that the lender you currently have is the best lender. Don’t throw the baby out with the bath water, so to speak. When you’re shopping around, see what your lender has to offer as well. You may realize that you had a good thing with them and you’ll want to stick with them. As an added bonus, oftentimes when you refinance with the same lender you’ll be able to negotiate down some of the fees that come with the refinance.
Before you begin the refinance, try to determine how long you intend to live in the home. Your plan of attack may change depending on what you decide. While this plan may change, having an idea of what you intend to do will give you a good starting point to work out of.
Compare the benefits of the ARM and the fixed mortgage. A fixed mortgage is great for homeowners who intend to live in the home long term. The interest rate isn’t going to fluctuate because it is locked in at the close of the loan. The homeowner knows what to expect for the life of the loan. On the other hand, if you know you may be leaving the home within a few short years, you may find the ARM has a greater appeal. Often, the interest rate is lower so you’ll be paying less over time, and by the time the rate changes, you will have sold the house and moved on.
Last but not least, don’t make your monthly payment the end-all. While refinancing can help you reduce the monthly payment, it doesn’t mean that you’ll be paying less over time. Compare the amortization schedule of the new loan with the amortization schedule of the old loan to get an idea of how much you will be saving or losing with the refinance.
Learning how to refinance and what to look for in a good refinance is the key to making the best choice possible. And, of course, your loan officer and/or mortgage broker will be able to help you with the fine details, so make sure you have a professional you can trust by your side.