Re-Financing Process by crescent06

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									             Re-Financing Process
Homeowners who are considering re-financing might initially be overwhelmed by the number of
options available to them. However, after taking some time to educate themselves about the
process, they will likely find the process is not nearly as daunting as they had imagined. This
article will discuss some of the options available to those interested in re-financing as well as
some of the important factors to consider in order to determine whether or not refinancing is
worthwhile.

Consider the Options

Homeowners have quite a few options available to them when they are considering the
possibility of re-financing their home. The most significant decision is the type of loan they will
choose. Fixed rate mortgages and adjustable rate mortgages (ARMs) are the two main types of
mortgages the homeowners will likely encounter. Additionally there are hybrid loan options
available.

As the name implies, a fixed rate mortgage is one in which the interest rate remains constant
throughout the duration of the loan period. This is an especially favorable type of loan when the
homeowner has credit which is sufficient enough to lock in a low interest rate.

ARMs are mortgages where the interest rate varies during the course of the loan period. The
interest rate is usually tied to an index such as the prime index and is subject to rises and falls in
accordance with this index. This is considered a riskier type of loan and is therefore often offered
to homeowners who have less favorable credit scores.

Although ARMs are considered somewhat risky there is usually a certain degree of protection
written into the loan agreement. This may come in the form of a clause which limits the amount
the interest rate can increase, in terms of percentage points, over a fixed period of time. This can
protect the homeowner from sharp increases in the interest rates which would otherwise
considerably raise the amount of their monthly payments.

Hybrid loans are mortgages which combine a fixed element with an adjustable element. An
example of this type of loan is a situation where the lender may offer a fixed interest rate for the
first five years of the loan and a variable interest rate for the remainder of the loan. Lenders
typically offer a lower introductory interest rate for the fixed period to make the mortgage seem
more enticing.

Consider the Closing Costs

The closing costs associated with re-financing should be carefully considered when deciding
whether or not to re-finance the home. This is significant because when homeowners re-finance
their home they are often subject to many of the same closing costs as when they originally
purchased the home. These costs may include, but are not limited to appraisal fees, application
fees, loan origination fees and a host of other expenses. These costs can be quite significant. The
closing costs will be significant when the homeowner considers the overall savings associated
with re-financing.

Consider the Overall Savings

When deciding whether or not to re-finance, the overall savings is one factor the homeowners
should carefully consider. This is important because re-financing is typically not considered
worthwhile unless it results in a financial savings. Although some homeowners refinance to lower
monthly costs and are not concerned with the overall picture, most homeowners consider
whether or not they will be saving money by refinancing.

The amount of money the homeowner will save when re-financing is largely dependent on the
new interest rate in relation to the old interest rate. Other factors come into play such as the
remaining balance of the existing loan as well as the amount of time the homeowner intends to
stay in the home before selling the property. It is important to note that the amount of money
saved by negotiating a lower interest rate is not equal to the entire savings. The homeowner
must determine the closing costs associated with re-financing and subtract this sum from the
potential savings. A negative number would indicate the new interest rate is not low enough to
offset the closing costs. Conversely a positive number indicates an overall savings. With this
information the homeowner can decide whether or not he wishes to re-finance.
Homeowners who are considering re-financing but are not knowledgeable about the subject
have a number of options available to them for finding more accurate information regarding the
types of re-financing options available as well as the ways to obtain the best available rates and
tips for finding a reputable lender. This information can be obtained through a number of
resources including published books, Internet websites and conversations with experts in the
financial industry who specialize in the area of re-financing. All of these sources can be very
helpful but there are also precautions homeowners must take when using each information
source. Taking these precautions will help to ensure the homeowner is receiving accurate
information.

Using Books for Research

Published books are often considered to be one of the most reliable resources for researching re-
financing options. However, not all books on the subject are created useful. Readers may find
some books provide a great deal of useful, current information while others books are filled with
outdated information and information which is not 100% accurate.

The best way to select a book or books when researching the subject of re-financing is to start
the search with books that were only recently published. This is important because the financial
industry is continually evolving and as a result books which were published only a few years ago
may already be considered out of date.

Homeowners should also seek out independent reviews when considering books on the subject
of re-financing. This is important because books which consistently receive solid reviews from
consumers are likely to be worthwhile. Conversely books which consistently receive negative
reviews are likely to not be worthwhile. Homeowners should seek out highly recommended
books while avoiding those that are not highly recommended. This may prevent the homeowner
from wasting time reading books which are not informative and may even be inaccurate.
Using the Internet for Research

The Internet is another resource which can be very valuable for homeowners who are
considering re-financing their home. The Internet is filled with valuable information but there is
also a great deal of misinformation floating around on the Internet. Homeowners who are
completely uninformed about the re-financing process may not be able to distinguish between
the useful information and the misinformation. As a result these homeowners may be led astray
by inaccurate information on the Internet. Homeowners who wish to avoid the potential for this
problem should consider verifying the information they find online through an outside source
such as a published book from a renowned author or by conferring with an expert in the subject
of re-financing.

Homeowners should also do the majority of their research on well established websites. This
includes websites owned and operated by major lenders which have been in business for years.
The information on these websites is likely to be much more up to date and accurate than
websites which are created for profit by website owners.

Consulting with Re-Financing Experts

Finally, consulting with financial experts who specializes in re-financing can be very helpful for
homeowners who are considering re-financing. This might be the most expensive option as many
of these experts will likely charge a fee for their services but it can also be the most reliable
source of information.

There are a number of advantages to consulting with an industry professional as opposed to
researching the subject independently through published resources. The most significant
advantage is the ability to ask questions throughout the re-financing process. This will help to
ensure the homeowner fully understands the available options. It will also help to ensure the
homeowner receives the best possible re-financing option for his specific needs. The re-financing
process works best when the homeowner offers their input about the type of re-financing they
are seeking as well as the benefits they hope to obtain through re-financing. The re-financing
expert can than make a better recommendation which will suit the homeowner’s needs.

The decision to re-finance a home mortgage is a serious decision which should not be taken
lightly. Homeowners should give this decision a great deal of consideration to ensure they are
making the best possible decision for their financial situation and personal needs. Some factors
to consider when deciding whether or not to re-finance is the type of loan to choose, the lender
to choose, the costs associated with re-financing and the hassle of the process.

Consider All of the Options

Homeowners who are seriously considering re-financing owe it to themselves to consider all of
the options available to them. They may have a friend who recently refinanced with a specific
type of loan but this might not be the solution for all homeowners. Each homeowner should
consider their situation to be individual and not likely to closely mirror the situations of others.
Some of the options to consider include the type of re-financing loan. The basic options are fixed
interest rates and adjustable interest rates. There are also mortgages which combine these two
options. The homeowner may have a specific type of mortgage in mind but the lender may or
may not be willing to offer the homeowner this type of loan. Lenders are more likely to offer
fixed interest mortgages to homeowners with good credit and adjustable rate mortgages to
homeowners with poor credit.

Consider the Lender

Homeowners will also have to carefully consider the lender they select. This is important because
not all lenders are going to be willing to offer the same interest rates and terms to the
homeowner. Homeowners may have to receive quotes from several different lenders in a short
period of time to make an accurate comparison. This is important because interest rates can
change without notice and homeowners who wait too long to make a decision may find the rate
they were originally quoted is no longer available to them.

When selecting a lender the homeowner should also consider how responsive the lender is to
their questions. This is important because a lender who does not pay attention to the
homeowner or respond to their inquiries in a timely fashion can make the process of re-financing
considerably more stressful than necessary. Selecting a lender who offers slightly higher rates but
is more responsive may be warranted.

Consider the Cost of Re-Financing

Re-financing is not cheap. There are certain costs associated with re-financing. These costs are
typically very similar to the closing costs associated with securing an original mortgage on a
property. These costs may include application fees, loan origination fees, property taxes,
appraisal fees and other miscellaneous items. These costs can be quite extensive and
homeowners may find they are often left paying more than the benefits they are going to gain
from re-financing. In this type of situation the homeowner should make the decision not to re-
finance because it is not a financially sound decision.

Consider the Hassle of Re-Financing

Let’s face it; re-financing can be an absolute hassle. The time and energy spent researching
different re-financing options and contacting lenders to see who will offer the most favorable
rates can be quite taxing. A homeowner should consider the time and effort required for this
endeavor in deciding whether or not to re-finance. Simply stated, refinancing is a hassle and
homeowners may better spend their time with family and friends rather than running around
trying to find the best rates in town.

Does It Pay to Re-Finance?

This is a question many homeowners may have when they are considering re-financing their
home. Unfortunately the answer to this question is a rather complex one and the answer is not
always the same. There are some standard situations where a homeowner might investigate the
possibility of re-financing. These situations include when interest rates drop, when the
homeowner’s credit score improves and when the homeowner has a significant change in their
financial situation. While a re-finance may not necessarily be warranted in all of these situations,
it is certainly worth at least investigating.

Drops in the Interest Rate

Drops in interest rates often send homeowners scrambling to re-finance. However the
homeowner should carefully consider the rate drop before making the decision to re-finance. It is
important to note that a homeowner pays closing costs each time they re-finance. These closings
costs may include application fees, origination fees, appraisal fees and a variety of other costs
and may add up quite quickly. Due to this fee, each homeowner should carefully evaluate their
financial situation to determine whether or not the re-financing will be worthwhile. In general
the closing fees should not exceed the overall savings and the amount of time the homeowner is
required to retain the property to recoup these costs should not be longer than the homeowner
plans to retain the property.

Credit Score Improvements

When the homeowner’s credit scores improve, considering re-financing is warranted. Lenders
are in the business of making money and are more likely to offer favorable rates to those with
good credit than they are to offer these rates to those with poor credit. As a result those with
poor credit are likely to be offered terms such as high interest rates or adjustable rate mortgages.
Homeowners who are dealing with these circumstances may investigate re-financing as their
credit improves. The good thing about credit scores is mistakes and blemishes are eventually
erased from the record. As a result, homeowners who make an honest effort to repair their
credit by making payments in a timely fashion may find themselves in a position of improved
credit in the future.

When credit scores are higher, lenders are willing to offer lower interest rates. For this reason
homeowners should consider the option or re-financing when their credit score begins to show
marked improvement. During this process the homeowner can determine whether or not re-
financing under these conditions is worthwhile.

Changed Financial Situations

Homeowners should also consider re-financing when there is a considerable change in their
financial situation. This may include a large raise as well as the loss of a job or a change in careers
resulting in a considerable loss of pay. In either case, re-financing may be a viable solution.
Homeowners who are making considerably more money might consider re-financing to pay off
their debts earlier. Conversely, those who find themselves unable to fulfill their monthly financial
obligations might turn to re-financing as a way of extending the debt which will lower the
monthly payments. This may result in the homeowner paying more money in the long run
because they are stretching their debt over a longer pay period but it might be necessary in times
of need. In these cases a lower monthly payment may be worth paying more in the long run.

								
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