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Refinancing Your Home Mortgage

Aug 6, 2008
As a first time home buyer you can not always get the best rate. Maybe you did not have twenty percent to put down or maybe your credit needed a little rebuilding. If you have been in the house for a few years now and you have built up some equity, it may be time to refinance and get a better rate. Refinancing your first home mortgage is very easy and painless, especially if you use your regular mortgage broker.

The process still requires an application, a home appraisal and some of the same financial documents you needed to provide for your first time home buying, but the processing and closing should be faster and this time there is no seller involved to slow the process. Speak with your mortgage broker about first home mortgage refinancing options. You will probably save some money and maybe you can pull out some equity and fix that master bathroom too.

Differences in a Refinance Mortgage Application

What is the difference between a mortgage application and a refinance mortgage application? The nuances are minor but important, so here they are:

A refinance mortgage application related to a single property - the home you own whereas a mortgage application may end up being used on any number of properties. Many mortgage applications are submitted to secure pre-approval and this means it will not be associated with any single specific home. You will need all the information about your current mortgage to move forward with a refinance so get together the documentation from your last closing.

With most refinance mortgage applications, you will have already chosen what type of refinance loan you want. Your choices come down to various rates and terms or if you want cash out refinance. Some lenders require proof of payoff for debt consolidation refinances or they require proof of the home improvements completed with a home improvement refinance loan.

Refinancing is typically easier than home buying and if you are prepared, your refinance mortgage application process will be smooth and easy.

Researching Refinance Rates

As part of an effort to revitalize the housing market and stimulate the economy in general the Fed has cut interest rates several times since the beginning of 2008. If you had an adjustable rate mortgage (ARM) you definitely need to consider refinancing with a lower fixed rate loan. Start with your current lender to see if they have refinancing options. If your current lender can not refinance you, look elsewhere. Look online. Tons of sites list current refinance and mortgage rates free of charge and many of them can even provide you a refinance or mortgage quote at the same time.

Check your local paper and keep abreast of any major interest rate fluctuations. Develop a long term relationship with a mortgage broker. These folks can proactively call you when there is a change in the interest rates or a new program that might fit your needs.

Look at you credit profile and pay down some of your account. The credit market is tight and lenders have raised the standards, therefore you need to work on your credit if you want to get a good refinancing deal.
Rate and Term Refinancing Rates

What is a rate and term refinance? This is when you refinance just to change the interest rate and the term of your mortgage. You are not pulling out any cash or equity - you are hopefully just negotiating a better deal for yourself. Your new interest rate will depend on how much money you are borrowing and for what length of time. Mortgage companies use something called a 'loan to value' ratio to calculate this. For instance, if you had an $80,000 home and an existing mortgage of $40,000, you would have a loan to value ratio of 50%. Basically, the higher your loan to value (LTV) ratio, the higher the interest rate.

Cost of Refinancing

Buying Down Mortgage Rates

If you are one of the lucky Americans that have control of their finances, or come into some money, you may want to consider a buy down mortgage refinance. Basically, you take that money and pour it into the equity of your home in one lump sum. By doing this you reduce your principal and your can reduce your interest rate. Buy down interest rates will depend on the lender and this is a situation in which you definitely want to shop around. Investing in your home equity is never a bad idea, and if you have the flexibility to do this, go for it.

Negotiating the Lowest Mortgage Rate Possible

Just like buying a car, you can negotiate with your mortgage broker on fees, interest rates and programs. A mortgage broker gets a commission based on how much a bank is willing to buy a loan from his company for - whether it is a percentage or a flat fee. In some cases, the mortgage broker even makes enough commission to pay for all of your closing costs and still nets a solid payment. The best way to make this work for you is to let banks vie for your business. Work with a couple of mortgage brokers and play them against each other. This may be a little painful if you are not used to doing it, but you need to focus on getting the best deal possible for yourself - not on their feelings.

Do not Get Greedy - Lock in the Current Mortgage Rate

When you are shopping around for a mortgage, do not wait around for the market to potentially improve, lock in that low rate as soon as possible. If you get greedy and wait too long, you may lose out on a full percentage point of savings or more. If you have developed a relationship with a mortgage broker, follow their advice. They want you to get the best deal possible so you will come back to them in the future, so do not be afraid to be guided by expert advice.

Cash-Out Refinance Rates

What is a cash-out refinance? Basically, this means that you refinance your mortgage - often for a different interest rate and loan term and you get a mortgage for higher than what you currently owe, leaving cash on the table for you. This is cashing out equity in your home for home improvement, large expenditures and even debt or credit card consolidation. The interest rate on a cash-out refinance is usually lower than what you would get from a credit card. In some cases, specific loan programs will require the closing company to disburse checks to your creditors or they may want proof of home improvements, but it is worth it to get such a low interest loan.
About the Author
I have years of experience as a Financial Advisor, and have a strong interest in personal and small business finance. I have an MBA - Finance and I am a CPA. Website: http://www.savannacapitalgroup.com Blog: http://savannacapitalgroup.blogspot.com
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