Mortgage

Mortgage Refinance Options

Once you decide to refinance your mortgage you make are making a long term commitment, which means you need to work out a serious plan to make the repayment process as smooth as possible. A second mortgage has its benefits as long as you plan the process well. Refinancing costs could be high, therefore, it is essential to work out the best terms and plan the operation carefully.

One of the first areas to look at is the interest rate and terms. If you currently have a fixed mortgage where the market rates are at least a couple of points lower, it will be easy to obtain refinance with lower monthly payments. In addition, you can apply for a variable rate if interests are likely to decrease over a period.

Some homeowners are likely to have several loans such as personal loans, credit cards, and mortgages that end up lowering their credit score and driving interest rates higher. If you are in such a situation, you are likely to be classified as a low credit borrower when you apply for refinance.

If you need more money at your disposal you can opt for cash-out refinancing. The will help to pay the old loans and have enough liquidity as well. In cash-out refinancing, you opt for refinance for more than what you owe on your mortgage and keep the difference. For example, if you owe $50,000 on your home worth $100,000 and require to lower your interest rate and still have around $10,000 in hand, you can opt for a refinance of $60,000. This will give you a better rate on the $50,000 you need for the home and leave you with $10,000 to spend. Remember, cash-out refinancing is a replacement of your first mortgage.

You can apply for a mortgage refinance loan even if you have bad credit. You may be required to pay higher interest rates since most lenders consider such borrowers in the ‘high risk’ category. The higher interest rates are to minimize the risk in case you do not repay on time. With bad credit it is important to consider the interest rates, closing costs, and terms and conditions offered by the lender.

It may be prudent to discuss alternatives with your current lender. In some cases, they may come up with a better solution to your financial needs. This will also cut short the time in obtaining a refinance loan since there won’t be much paperwork involved. Often, they may come up with better schemes than other lenders.

Prior to obtaining a refinance mortgage loan, make sure you are aware of all the costs involved. There may be hidden fees involved which could add up to the expenses. It is essential to make an accurate calculation and consider all the costs in order to make sure you aren’t much more than your current mortgage loan.

The bottom line is to plan your mortgage refinancing well, and decide if you should even consider it. Refinance is for a long term, which requires that you have a thorough understanding of the pros and cons.