HOME MORTGAGE REFINANCING

3. Shop around and find several different lenders to refinance your mortgage

The market for refinancing mortgages has become so crowded and competitive that it is fairly easy to find several lenders to compare. You might use a broker. The newspaper and the yellow pages are also good places to start. If you are comfortable negotiating the Internet, it is an excellent resource. There are many services online which will perform a preliminary search for a lender. Your current mortgage lender should also be included in this group.

4. Negotiate the mortgage refinance loan that suits your needs

Many times the compensation a lender makes on refinancing a mortgage is dependent on the terms of the mortgage so it is up to you to make sure that the loan received is the most advantageous for you. You might want to investigate mortgage refinance lenders who offer no closing cost loans or free appraisals. It is important to make sure that you are comparing like products. In order to do this, have your lender present proposals in writing and require ample time to compare the different offers. Prepare a list of the features of each loan. The type of loan, interest rate, points, prepayment penalties, closing costs are a few of the loan elements which should be compared. Check the rate you are being offered against the rates from the most current newspaper listings. The more organized, thorough and knowledgeable you are, the better your decision will be. Deciding to refinance your mortgage is an important choice that should not be made lightly. Know why you are doing it. Know the possibilities for refinancing lenders and products that are available. Be willing to shop amongst the different lenders and to negotiate a beneficial deal. If you follow these steps, finding a good mortgage refinance lender will be much easier.

• Loan Programs - Just because the Internet makes the loan process easier doesn't mean you should abandon common sense. Take the time to analyze which loan program best meets your needs based on the big picture of how long you'll live in the house, the payment you can handle comfortably, and how much cash or equity the lender requires.
• Fees - All lenders don't charge equally. Many offer a lower interest rate, but make up the discount in fees and charges. Analyze costs between lenders by obtaining a list of all associated loan fees known as a "Good Faith Estimate".
• Service - Obtaining a loan online won't do you a bit of good if you run into a problem and need to speak with a live human. Make sure your online lender maintains offline customer service.
• Rate Lock-in - The lender's website should clearly explain their interest rate lock-in period and policy. Don't get lured in by a lender offering a lower rate and points only to find out the hard way that your interest rate lock expires before you can get the loan closed.
• Loan Commitment - Find out from the lender's site what legally binding documentation they provide to document the loan commitment once you get loan approval.
• Though many borrowers use the Internet purely for research, record numbers now go online to apply and complete the entire mortgage process on the Web, while saving significant money and time in the process.

Applying Online is Safe

Many people are cautious about applying for an online mortgage loan because they fear their credit information may be stolen. However, your chances of becoming a victim of identity theft are just as great when you apply for a loan in person. The vast majority of online lenders use encrypted transmission to send your loan information. After you complete the application, the text is changed to a secure code, which makes it difficult for others to obtain your personal information.

Do you remember how I said the interest compounds daily? Go grab your bank statement from your checking account. Do you see were it tells you what your starting and ending balance is? You will also see something that says "Average Daily Balance." That means with all of the deposits and withdrawals, this is the average amount you had in the account. If you park this money into you HELOC it will lower the balance of your loan, thus lowering your payment. Because it compounds daily, it does not matter if you are constantly making deposits and withdrawals, you still benefit. Any amount you deposit into the HELOC above your basic interest goes 100% to lowering the principal balance. Let us work with some hard number so you can see it in action.

Say you have a $150,000 HELOC at 8%. This would make your full payment $1,100, with $1,000 of that going toward interest. Therefore, a whopping $100 goes toward principal. You also have an average daily balance in your checking account is $10,000. You park the $10,000 into your HELOC, making the balance $140,000. That would lower the interest part of your payment to $933, a savings of $67. Therefore, of your $1,100 payment, $167 goes toward principal instead of $100. For some of you that might not sound like much, so let me put it in these terms:

You will save $140,040 in interest on this $150,000 loan! It would be paid off in 20 years instead of 30. That is 120 less payments times $1,167 per month. Imagine the drop in your stress level because of the lack of money worries! The funny part of it is the fact you can save actually more, A LOT MORE! I didn't even talk about the tax strategies involved, or the way how this $140,040 savings can actually be a $509,000 gain! Does that Sound Interesting, if not almost unbelievable? I would tell you right now, but it is getting late and I am tired. You will have to call or email me for more info on this...

Increase Your Down Payment

By increasing your down payment, you can knock off up to a percentage point. Zero or little down financing is great for those short on cash, but rates are significantly higher. Ideally, you want to put down 25% to get the best rates. Just leave enough cash reserves to financing moving expenses.

Pay A Point Or Two

Points paid upfront can also lower your interest rate. You want to be sure though that you recoup the upfront costs. If you plan to move or refinance in a couple of years, you will not see the savings of lower rates. You may also find that your money would be better spent on increasing your down payment than on paying points. With this type of decision, you will want to do some math with a mortgage calculator.

Bulk Up Cash Reserves

By increasing your cash reserves, you can also improve your credit score to qualify you for lower rates. Take advantage of tax refunds or cash bonuses by putting them into your savings. Lenders look at saving accounts, money markets, and CDs as cash reserves, not stocks or other volatile assets.

• Know your credit score. By law you are allowed one free credit report a year. The credit reporting agencies that supply the report generally will also offer your FICO score for a small additional fee. There are other factors that influence your ability to obtain a home equity loan but your credit report and FICO score are good places to start.
• Once you have identified several possible sources for refinancing your loan, have the lenders explain the different loan products they offer. Don't be afraid to ask specific questions and don't be hypnotized by a low interest rate. A low interest rate alone is not sufficient reason to accept a loan proposal. Ask about the term of the loan and the closing costs. Make sure the lender explains any terms you may not fully understand such as points.
• Let the lenders know they are competing for your refinancing business. Sometimes a lender will sweeten your deal if there is the possibility the it might be lost otherwise.
• Have all proposals submitted in writing. Take the time to compare them and always make sure you are comparing the same types of things. For instance, don't just look at the bottom line number on the closing costs see what each lender is including in the closing costs.
• Be alert to potential scams. Don't be intimidated by your refinancing lender into signing anything that isn't absolutely true. Don't sign anything that has blanks or that you haven't read.
• Know your rights. There is generally a three day penalty free right to cancel when you refinance your loan. If something doesn't seem correct to you, don't shy from invoking that right.

Refinancing your loan in order to access your home equity can be a wise financial move. Your home, however, is probably the largest portion of your net worth so proceed with caution and knowledge.

Remember those closing costs on your initial mortgage? You probably paid for an appraisal, perhaps a home inspector's services and even a survey if you have rural property. Depending on how long it's been since your original loan, you may be faced with having all those processes repeated. Especially if you are going with another lender, have had the existing mortgage for at least two years, have made major modifications to your home or property, or have seen some significant variations in property values in your area, your'e probably going to be required to have an appraisal at the very least. While it's not a huge cost for an appraisal, comparing that with the amount you're going to save on a slight drop in interest rates could show that it will take months to recoup that expense. Don't forget that you'll likely have some additional closing costs from the lender on the new mortgage (you are, after all, taking out a new mortgage even though you have an existing loan) and you may even be facing penalties for paying off your existing loan early. Weigh those costs against what you expect to save before you take this step.

So does that mean that you should never refinance an existing mortgage? Actually, there are plenty of opportunities when refinancing your mortgage makes good financial sense. If you've significantly increased the value of your home or have been paying for several years, you may have enough equity to qualify for a better interest rate. You may also lower monthly payments or refinance to make improvements. In the end, it's up to you to weigh the costs of refinancing your mortgage and decide if the time is right for you to take this step.

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