Saturday, 28 May 2016

Mortgage Refinancing is Worth the Effort

With interest rates continuing to clock in at remarkably low levels, many homeowners may be considering mortgage refinancing. They may be looking to pull the equity out of their house for needed improvements or a dream vacation. Others may want to find a lower interest rate or may want to consolidate and pay down other debts.

Do Not Bypass Refinancing Savings

On the other hand, there are many homeowners who could refinance and put themselves in a better financial system, but for some reason they do not. Whether they think refinancing is too complex or assume they will not qualify, about one in five homeowners take a pass, leaving nearly $6 billion untouched, according to the National Bureau of Economic Research.

If you are one of those sitting on the fence about mortgage refinancing, understand that it does not have to be complex or time consuming if you do the legwork. If you need motivation, consider that the NBER has found that you could be forfeiting an average of $11,500 by not moving forward on your plans. On many loans, the benefit can total much more than that.

Prepare for Paperwork

One of the first things to do when seeking a mortgage refinancing deal is to assemble as many of your financial details as possible. In the past, refinancing was a relatively simple process with only a few requirements. Now, however, banks have tightened their rules and will demand a seemingly endless stream of paperwork before finalizing the loan.

Therefore, you will need to be ready with all the recent pay stubs, bank statements, and tax returns that you can assemble to prove your income. This will help streamline the process, which now can take as long as three months or more to finalize. 

In fact, it often is helpful to approach refinancing in much the same way as someone needing a mortgage for a first home purchase. So be prepared to answer follow-up questions.

Figuring the Benefits

If you are being held back from mortgage refinancing by that old rule of thumb that you should not refinance unless you can cut your interest rate by at least one percent, ignore it. A reduction of even a fraction of a percentage point can bring benefits that can make it worth the effort. Check reverse mortgages california tips.

The secret is to find how many months it will take to break even before you start truly saving money. Do this by dividing the total closing cost amount by the savings per month. In other words, if the closing costs were $4,000 and the savings on your payments is $200 per month, you will break even in 20 months and be realizing actual savings thereafter.

Qualifying for mortgage refinancing also is not just for those with perfect credit scores. First time homebuyers with scores as low as 580 can find FHA loans, so those in the refinance market can find options, even with minimal equity in the home. 

The secret is to shop around. Start with your mortgage lender and ask if you can arrange a mortgage refinancing deal. Then go to at least two or three competitors and see if you can pre-qualify. Shop around for the best rate. Look into banks that are outside of your area. The trip could be worth it.

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