Refinancing? Here are 3 Things to Consider

With interest rates near record lows, many homeowners want to refinance their mortgages. This can make sense, since it can mean that you save money over the life of your loan, or that you can improve your monthly cash flow (or do both).

As you refinance your mortgage, it’s important to think about your financial goals, and how your new mortgage can help you accomplish them. Here are 3 things to consider:

Cash Flow vs. Long-Term Savings

One of the first things to consider is the purpose of your mortgage, beyond getting a lower interest rate. Is cash flow important to you? Or are you more interested in long-term savings?

Look at your monthly income. Do you wish you had a little more wiggle room? If you are looking for money in your budget each month, refinancing can help, if you extend your term. A 30-year mortgage provides you with a lower monthly payment, allowing you the opportunity to breath a little easier – especially if you are worried that you might run into financial problems later.

On the other hand, you might be interested in long-term savings. This means paying off your loan as quickly as possible, even if it means a higher monthly payment. A shorter term at a lower interest rate can mean a savings of tens of thousands of dollars over the life of your loan. If you have the room in your budget, this can make sense. But if you will be stressed to make your payment each month, this might not be practical.

Getting the Best Interest Rate

When you refinance (or get any loan for that matter), getting the best possible interest rate is important. Before you apply for your refinance, check your credit to see if you need to improve your situation. If your credit score could use improvement, take a few months to fix problems.

Dispute errors on your report so that the mistakes are remedied. Make your payments on time. Pay down debt. Avoid opening new lines of credit. If you do these things, you will be able to improve your rate. You might also be able to pay points on your refinance to bring down the interest rate a little bit more.

Don’t forget to consider closing costs. If you can’t get a rate at least 1% lower than your current rate, it might not be worth it to refinance, since the closing costs might not be offset by your savings.

Documentation

Don’t forget to consider the documentation that you will need to refinance. You normally need to show that you can afford your new payments (especially if they are higher), and that you have the assets available to pay closing costs and other out of pocket expenses.

When I refinanced my mortgage earlier this year, I was required to pay off a small second mortgage that I got when I bought the house. This was an out of pocket expense that was considered in my refinance. I had to provide account information from my taxable investment account and my retirement account, as well as bank account information and PayPal income information. Find out what is required ahead of time so that you can avoid unnecessary delays.



Also, be aware of the timing involved in canceling your autopay with your old mortgage lender. Talk to your new lender about the timing, and try to coordinate so that you don’t end up missing payments. My new lender, Quicken Loans, was great about helping me properly cancel my autopay at the right time so that I was up to date on my payments before they paid off the mortgage.

Bottom Line

Remember that your refinance is a mortgage loan. You basically get a whole new mortgage to pay off the old mortgage. As a result, you need to be prepared to go through all of the steps associated with getting a mortgage. Prepare ahead of time so that you know how your refinance will fit into your long term financial plan, and so that you know what you need to make the transaction successful.

source: financialhighway.com

Some Mortgage Failures Homebuyers Need to Avoid

Applying for a mortgage for your real estate investment plans is really a daunting and complicated process. It involves too much paper works and too much technical concepts to learn. However, no matter how complex this process can be, you do not have a choice but to learn this process because this is a crucial part of the home investing process, more particularly if you do not own enough cash to pay for the property, let us suppose a Destin real estate. Before you experience the most interesting stage of the entire investing process, which is visiting and viewing Destin homes for sale, learning the proper procedures of the home loan application is a must. This is to separate you from other homebuyers who go into this crucial financial process without having the full grasp of the process first. The mortgage application can be tiresome and it can give you a lot of confusion. There are possibilities that you make some errors during the process but it is best that you know the common mistakes home buyers do so you can avoid them, yourself.

Error # 1: Not fixing your credit report before applying for a loan
Most homebuyers, especially the inexperienced ones, tend to go into the application process for the mortgage while not going through and checking their credits and other financial deficiencies first. Because of this mistake, many homebuyers receive got rejected with their mortgage application. If you have a low FICO credit score, expect that there are high chances for your application not to be approved. The FICO score is represented by three digit number and it shows how credible you are to have a credit. Seventy five percent of the decisions in mortgage application use FICO score for basis. Try to check your credit score six months before you apply for a loan so you will have ample time to fix whatever wrong information stated in your credit report and improve your score if you get a bad one.

Error # 2: Not researching about mortgage programs available for first time buyers
National and local government are sponsoring various mortgage programs for first time home buyers or people who do not own a main residence for the last two years. Most of the loan programs of the government and non-profit agencies give better interest rates. Try calling local housing agencies and ask about the available home loan programs.

Error # 3: Applying for too much loan
Many of the homebuyers tend to miscalculate the amount of money they borrow, most of the time, overestimating them, because they think that their income will increase after several years and that will make the mortgage payment be more comfortable for them as the time goes by. They will try to apply for the largest amount possible, but actually, this kind of decision can only result to headaches, more expenses and possible foreclosure. Aside from the monthly payment for your home loan, you also need to consider allocating portions of your income for household expenses such as bills, maintenance and repair fees, among others. You have to make a long-term financing plan first before you set the amount you will borrow so it would be easier for you to keep up with the monthly payments.

Joseph Brooks is a writer with expertise in real estate business and investments. To know more info about Destin Homes for Sale and Destin Real Estate, visit the listings on our website.

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