How to Refinance Your Home

How to Refinance Your Home
  • Opening Intro -

    Homeowners enticed by historically low interest rates are considering refinancing their homes.

    This may be an option for you as well, especially if you took out a mortgage several years ago and are paying an interest rate that is at least one point higher than your current rate.

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Refinancing makes sense if you plan to stay in your home for the long term, enabling you to enjoy the benefits of a lower monthly payment and have more money in your pocket.

1. Review your credit. Your credit history can have a profound impact on your quest to secure a lower interest rate home loan. If you haven’t checked your credit in a while, visit AnnualCreditReport.com to pull up copies of all three of your credit reports. Done once annually, this process is free and can give you the chance to read what your creditors are saying about you. If you find that some of the information supplied is outdated or incorrect, notify the respective bureau. Once the corrections have been made, your credit score — ordered and paid for by you separately — should rise. The higher your credit score, the lower your home loan interest rate should be.

2. Your home’s value. After several years of steep market declines, your local housing market may have stabilized. For many homeowners, they owe more on their homes than what they are worth. Work with an appraiser to determine your home’s current value. If you have equity in your home, then you are in a better position to finance than the homeowner that owes more on his home than what it is currently worth. Owing more on your home is called being “upside down” on your mortgage, making refinancing difficult to do unless you come up with more cash at closing.

3. Shop around for a loan. Your current lender is place to look for a new loan, but it isn’t the only avenue to a better home loan interest rate. Shop and compare mortgage loan offers from a variety of banks, financial institutions and mortgage brokers. A 0.125 percent interest rates difference may not seem like a lot, but over many years it can save you thousands of dollars in interest payments, money that can be invested or put to better use elsewhere.

4. Apply for a new home loan. Once you have found the mortgage offering that is right for you, apply for a loan. When approved, contact your new mortgage company and discuss your rate options, closing costs and terms. You may be able to negotiate an even better rate or change some of your terms. For instance, if you applied for a 15-year mortgage, you may find that a 20-year home loan is more suitable for your budget.

5. Close your loan. Your mortgage brokers will require much paperwork from you including recent pay stubs, your tax returns, a copy of your current mortgage, title insurance and a plot plan. Your lender may require other documentation including a termite inspection, proof of homeowner’s insurance and a water or sewer certification letter. Once your loan is closed, your previous mortgage holder will be paid off by your new mortgage company. Send your monthly home loan payments to the new company.

Refinancing Considerations

If you are not sure that refinancing is right for, contact your financial advisor for assistance. Closing costs can eat up your savings, therefore try to get these costs reduced before closing on your home loan.

See AlsoLow Appraisals and Your Home’s Refi

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Categories: Home Financing

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Auto Trends Magazine", an online publication. Matt covers campus, consumer, business and financial topics on various websites and weblogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".