Refinancing a Mortgage Considerations for Refinancing Refinancing

Despite the news of low credit availability, you can take advantage of the record low mortgage interest rates by refinancing your current mortgage. By doing your homework ahead of time, refinancing your mortgage takes just a few hours.

Refinancing provides you with many advantages. By refinancing a mortgage, you can reduce your monthly payment, modify the time period associated with the loan, obtain a fixed interest rate, and reduce the overall cost of the loan with a lower rate or shorter mortgage term.

Despite the temptation of low interest rates, there are other considerations to make before deciding to refinance your home. Before considering refinancing, be sure to read over the fine print in your current mortgage to determine if there are any penalties or other concerns that may impact your decision to refinance.

Other considerations you should make before deciding to refinance your home include the amount of time you intend to stay in your home. If you plan on moving in the next year or two, refinancing may not make financial sense. Your financial goals and home equity plans should also be taken into consideration.

According to Wells Fargo, a general rule of thumb for refinancing is when interest rates are 1/2% to 5/8% lower than your current interest rate. Just a half of a percent reduction in interest rate can make a big difference in your mortgage payment and overall financial savings. For instance, a 30-year fixed rate mortgage of $200,000 at 5.5% instead of 6% would save you $756 dollars a year and $22,680 over the 30-year life of the mortgage.

Refinancing is also a good time to reconsider the length of your mortgage. To cut monthly expenses, increase the term of a mortgage or if monthly expenses are not a concern consider cutting terms to a shorter mortgage term which often have even lower interest rates and greatly reduces the amount of interest paid over the life of the loan.

The documents required for refinancing varies by lending institution and state. If you are working with your current mortgage holder, less paperwork may be required than with a new financial institution.

Many lenders may ask you to fill out a refinance application. According to the checklist provided by Mortgage Saver, some of the common documents required for refinancing are proof of income, pay stubs showing income for the last 30-90 days are common. You may also need to have a copy of homeowners insurance, W-2 forms for the last year and information pertaining to other assets. A copy of your current mortgage may be good to have on hand as well.

To refinance it is common to pay refinancing fees of 3 to 6 percent of the outstanding principal on your mortgage. There may also be an application, prepayment, inspection, appraisal, origination and points fees. The Federal Reserve provides a full listing of estimated fees you can expect to pay when refinancing.

A good place to start when refinancing is your current mortgage lender. Let them know you are interested in refinancing and are shopping for the best rate. If you find a better rate elsewhere, ask your current lender if they can match the rate. Many times they will or offer other savings to keep your mortgage.

Web sites like offer mortgage rates across the country to give you an idea of what interest rates are currently as well as calculators to help you determine monthly payments at different interest rates.

When shopping around for a new mortgage, be sure to compare all the interest rates and costs for each lender. To assist you with comparison shopping when refinancing, the Federal Reserve also provides a free Mortgage Shopping Worksheet available for download on their web site. This provides useful information and questions for you to ask in order to get the best refinancing deal for your mortgage.

Now is the perfect time to take advantage of low interest rates to refinance your current mortgage. Shop around to find the best rate and you could be enjoying lower monthly payments without the hassle of moving.


Federal Reserve Web Site:

Mortgage Saver Web Site:

Wells Fargo Web Site –