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The terms of your current mortgage may not have been as favorable to you as you would have liked them to be. Now that a few years have passed, you have the opportunity to refinance your mortgage. Refinancing means that you will obtain a new loan with which you will re-pay your current mortgage, but your new loan will have different terms. The good news is that these new terms will be more favorable to you than the terms of your last loan.

What Would You Like Refinancing to Accomplish?

The first thing you must know is what you hope to accomplish with refinancing. People often choose to refinance because they wish to lower their payments, but this may not be the best plan for you. You may have a 30-year mortgage right now that you have been paying for several years. If you were to refinance with another 30-year mortgage, it would extend the amount of time that you are paying for the loan. It would also mean that you would pay more in interest. You will need to figure out how much interest you have already paid and how much interest you will be required to pay with a refinance before you can decide if refinancing is worth it.

Another thing to consider is the fact that you pay most of the interest in the beginning of the term. With your current mortgage, more of your payment is going toward reducing the balance because it is an older loan. Refinancing would increase the amount of interest you would be paying over the life of the loan because the new terms would just be beginning.

The Mortgage Refinance Calculator

If you are determined to refinance your mortgage, a very useful tool is the “mortgage refinance calculator.” You will need to know how much you are going to borrow, what the interest rate will be and which fees you will be required to pay. The calculator will give you several useful pieces of information, including the following:

  • Your new monthly payment
  • Your new interest rate
  • Your new loan amount
  • Your monthly savings

In order to find the best rate, you will need to contact several lenders and ask for their mortgage refinance rates as well as their loan estimates. Along with the estimates, each lender will also send you a document with the terms of the loan, what the payments are expected to be and the expected closing costs and fees. With the mortgage refinance calculator, you will be able to compare the different rates to determine who is offering the best terms.

The Home Affordable Refinance Program

President Obama introduced the Home Affordable Refinance Program in 2009. Under HARP, if you have very little equity in your home or your mortgage loan balance is equal to or higher than the amount that your home is worth, you qualify for HARP. You must be in current standing on your mortgage payments, and the loan must be owned by Fannie Mae or Freddie Mac.

HARP allows you to refinance your mortgage without incurring any extra mortgage insurance. You can also shorten the terms of your loan, and if you have an adjustable rate mortgage, you can switch to a fixed-rate mortgage. It doesn’t matter what your credit score is because the program does not require a minimum credit score to qualify.

Create a Plan

Before you begin to approach a lender about refinancing, you will want to create a plan first. The first thing you will do is determine your goals. As we saw earlier, you are going to want to shorten the terms of your loan or keep your current terms and lower your interest rate. Now that you know what you want to do, you must know what your credit score is because the terms you will be offered will be based on this score.

Next, find out how much people are asking for houses such as yours. Then, it is time to learn what lenders are offering in terms of mortgage rates. If you do this online, you can do so without submitting loan applications or having your credit report checked. Once you have done this, you only have about two weeks to set the application in motion because your credit will take a hit.

The final steps are to learn what fees each lender will be charging, gather all of the documents the lenders need and make sure that your interest rate is set. It is a good idea to have cash available to pay the closing costs, so prepare for that.

Now, you are fully prepared to search for the best mortgage refinance.