March 7th, 2016 1:25 PM by Jackie A. Graves
When the time is right to
refinance your mortgage, you’ll probably want to make it as painless as
possible. It’s a natural inclination to simply contact your current mortgage
holder and take them up on one of the many offers they may have made to you
through emails and direct-mail promotions. However, to realize maximum savings
and make the whole process worthwhile, here are seven important items to put on
the to-do list.
you trigger a mortgage refinance, review the balance and terms of your current
loan. This will help you determine how much you’re likely to save when you take
into account prevailing refinance rates, the payoff with your current lender
and the fees and closing costs you’ll encounter.
also get a good idea of your best possible savings scenario, as well as the
minimum acceptable loan terms you’ll want to negotiate.
creditworthiness has improved significantly since you took out your existing
mortgage, you could be in for a pleasant surprise. A higher credit score can
earn you a lower mortgage rate.
your credit history for accuracy by getting a free report from
AnnualCreditReport.com, the official website set up under the federal law that
guarantees free reports for consumers. Then consider purchasing your current
credit score from one of the three main credit bureaus. There are many
variations of the popular FICO score; be sure to ask for the one most commonly
used by mortgage lenders.
banks and credit card companies offer free credit scores to their customers.
These can be helpful, but you may not be getting the score most relevant to a
mortgage application. Research conducted by the Consumer Financial Protection
Bureau found that different scoring models can change the credit-quality
category for nearly one-quarter of consumers. (For example, from “good” to
everything checks out OK with your credit history, lock in your qualifications
by resisting the urge to make additional credit card purchases or open new
credit accounts. If anything, hoard available cash and pay down any debt that
you can. Protecting your credit score can be instrumental in maximizing your
mortgage refinance savings.
shows that borrowers obtain the biggest savings by shopping at least three
lenders. In a recent study, the CFPB found that 47% of consumers consider only
one lender when seeking a mortgage, potentially missing out on thousands of
dollars of savings by overlooking a home loan lender with a lower interest rate.
put less than 20% down on your original mortgage, you’re probably paying for
mortgage insurance. That’s a fee that protects the lender in the event of
your home’s appreciation may have given you enough equity that further mortgage
insurance premiums are unnecessary — but some lenders don’t have to
automatically terminate mortgage insurance until the balance on your loan falls
to 78% of the original purchase price of your home, or until the midpoint of
your mortgage payoff, whichever comes first.
away — or at least lowering — your mortgage insurance premiums can provide
significant savings, particularly if your original home loan was backed by the Federal
Housing Administration, or FHA.
common temptation to take a cash-out refinance, which converts your equity to
cash that you can spend. Maybe it’s even for worthy causes, like funding a
college education or paying off high-interest credit cards.
thing is, you’re raiding your home’s value — and that can be a slippery slope,
especially if home values start heading south again. If you default on the
loan, you could lose your home. Or you might decide you want to move in a few
years, only to discover that your home equity has been eliminated by that
possible pitfall: extending the payoff term of your home loan. Sure, it can
lead to a lower monthly mortgage payment, but it will greatly increase the
interest you’ll pay over the long(er) term.
savings come from paying off debt, not adding to or extending it.
your current home loan is an adjustable-rate mortgage, and you think interest
rates are sure to rise. Or, you have a higher-rate fixed-term loan and believe
that a lower-rate ARM is the way to go.
on your circumstances, including short-term and long-term housing needs, it may
be time to rethink your mortgage refinance strategy. By
taking a close look at various scenarios, you may find that a different type of
mortgage better suits your needs and saves you a money.
firm savings strategy in mind, it’s time to start the application process. If
it’s been a few years since you’ve tackled a home loan, prepare yourself for
the paperwork. The days of “low doc” or “no doc” mortgages are over.
likely face more disclaimers and fine print than you’ve seen in a while. And
you may encounter your share of LOEs — letters of explanation — requesting that
you explain anything from your employment history to random bank deposits.
end, it’s likely to be well worth all the effort, as your savings grow with
each refinanced mortgage payment.
By HAL M. BUNDRICK, CFP – To view
the original article click here