Freedom Mortgage – Refinancing Your Home
The recent housing meltdown has made millions of homeowners consider home refinance as an alternative to foreclosure. However, many people are often confused about the difference between a refinance and a home loan modification. For many, refinancing is considered a quick fix that will allow them to save money, while others are not aware that they are actually losing valuable equity during the process. A home refinance is only for homeowners that have fallen behind on their mortgage payments for a significant period of time.
Home refinancing is not the same as a mortgage modification. Refinancing a home is a process where you take out another loan that covers the original mortgage balance. If you fall behind on your payments, however, you can end up losing the cash value of your home. In order to avoid this type of financial setback, you should find a new mortgage that falls within your refinance terms. With your original loan, lenders may be willing to reduce your principle, reduce your interest rate, or even eliminate the points that are attached to your mortgage.
Another common misunderstanding about home refinance is that it can help homeowners lower their monthly bills. While it’s true that your interest rates may go down as you refinance your mortgage, they will remain largely unchanged. Most lenders require that you maintain at least a meager 3.5% payment on the new loan in order to qualify for a refinance. Any other amount of money you borrow will go to paying down your existing debt, not reducing your current mortgage balance.
As mentioned above, a major reason that homeowners refinance is to lower their mortgage payments and thus eliminate or reduce their debt. In order to determine whether or not you will be able to qualify for a lower interest rate or a lower payment, check your credit score. To get started, request a free copy of your credit report from one of the three major credit reporting agencies (Equifax, TransUnion, Experian). There are many resources online to learn more about your credit score and how it may impact your home refinance decision.
After learning your credit score, the next step is to research mortgage offers. Many lenders offer a mortgage refinancing program that can save you thousands of dollars over your existing mortgage. These programs usually have a set term, fixed interest rate, and fixed closing costs.
Before applying for a refinanced mortgage, look for an offer that has the lowest fixed interest rate and the lowest closing cost. The terms may require that you pay origination fees, purchase insurance, or even contribute to a homeowner’s program. If you can save money over the long term by refinancing your home, this will allow you to pay down your debt faster.
Once you find a mortgage offer that meets your financial goals and provides you with a reasonable term and payment, contact your lender. Most lenders are more than happy to work with you on a new mortgage. They may also be able to negotiate a better interest rate or lower monthly payments. In some cases, they may also be able to eliminate some of the points and closing costs associated with your original loan.
Refinancing is a great way to save money on your monthly payments, get out from under an excessive amount of debt, or even move to a new home. Before making your final decision, take the time to research interest rates and loan terms. If you do enough research, you will have no problem finding a home refinance that works for you. Enjoy the freedom mortgage refinance represents!