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The Path to Refinancing your Mortgage

As mortgage rates continue to decrease, many homeowners are considering refinancing their mortgage, particularly if they originally purchased their home with an adjustable interest rate.

When considering refinancing your mortgage there are several critical steps that you should make sure you follow. First, it is imperative that you make sure you know the value of your home as well as the current interest rate on your mortgage and your credit score. It is also a good idea to do some math on your own to determine whether you will be able to recoup the amount of the closing costs within a relatively short amount of time. Many homeowners are often surprised by the amount of documentation that will be required when refinancing their mortgage loan, so it is important to gather as much information as you can before you submit your application.

Always make sure that you consider exactly how much money you will be saving if you refinance your mortgage. What exactly is your current interest rate and what will the difference be between that interest rate and a new interest rate? Will the difference be sufficient enough to allow you to save enough money to warrant refinancing your mortgage? Keep in mind that a refinance does not come free. There are application fees and closing costs that you will need to pay when you refinance. Make sure that you will save enough money to justify those costs.

Understanding the accurate value of your home at the current time is also critical. Home values have decline significantly in many areas. As a result, many homeowners have found that they no longer qualify for a refinance because they simply do not have enough equity in their home. Even worse, some homeowners have discovered they are actually upside down on their mortgage loan. The amount of equity that you have in your home is an important factor in determining the type of refinance that will be available to you as well as whether you will even qualify for a refinance at all (Find out what's your home worth here).

If you do find out that you are upside down on your mortgage, it is critical to determine exactly what the difference is between the value of your home and how much you owe on the mortgage. In the event that your loan exceeds 105% of the property value it is likely that you may not qualify for a refinance unless you are able to pay a large chunk of cash upfront.

Inspecting your credit report and score is also another critical step in refinancing your mortgage. Most lenders today are exercising lending guidelines that are far stricter than in the past. As a result, it is always a good idea to ensure you know exactly what is on your credit report before you apply for a loan. Remember that all consumers qualify to receive a free copy of their credit report once per year. Take advantage of that opportunity to avoid surprise later on.

Make sure as well that you shop around for lenders. This process will take a bit more time but it will certainly be worth it to make sure that you find the best deal possible, in terms of interest rate as well as application fees. Possible sources for lenders include national lenders, local lenders and even credit unions.

When shopping for a new mortgage, make sure that you consider all of the terms of the loan rather than the interest rate only. Certainly the interest rate is important, but you also need to take into consideration the amount of money that you will need to pay in terms of fees and how that will affect your monthly savings from the refinance.

Finally, make sure that you have all of your paperwork together in advance of applying for a refinance. While at one time it was possible to apply for a loan online or over the phone, an increasing number of lenders are requiring more paperwork as a result of the current lending crisis. Lenders are looking for copies of tax returns, bank account statements and proof of earnings now in addition to a current paycheck, a copy of your W2, retirement accounts and any other applicable assets which you may have. Making sure that you have all of this information together in advance in order to avoid time consuming delays later on and ensure that once you apply your mortgage application goes as smoothly as possible. If you think there are great benefits to refinancing your home to take advantage of the low interest rate, you can click here to get custom refinancing rate quotes from up to 4 local and nationally-recognized lenders here.



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