What should I know about refinancing?

There are several things to know about refinancing. Make sure you make copies of all your paperwork and don't give out originals. Make sure you order your own appraisal. Make sure you compare all loan offers carefully.

When contemplating a refinance be sure to check carefully what the loan will cost you. The cost will include any points paid, fees charged by the broker and/or the lender plus all title and escrow fees. You may want to see if a no cost loan, where the broker or lender pays all your closing costs, is appropriate for your situation.

Understand that a loan takes time and you need to plan accordingly. Often a loan can take up to 3 weeks to complete.

When refinancing make sure that you do not make any additional purchases on credit cards. The other major issue is to make sure you make all payments on time, including your mortgage.

Be sure to review the Good Faith Estimates and the Truth In Lending (TIL) when comparing different loans from various brokers or banks. Be skeptical if the settlement costs are extraordinary high or exceptionally low. Unscrupulous loan officers may purposely omit some of the charges to gain your business.

A successful refinance transaction usually hinges on a good appraisal. Do some research on your own to determine a conservative estimate of your home's current value, or contact a local real estate agent and ask for the market data on your neighborhood. Real estate agents usually have access to the same data as an appraisr.

When refinancing it is important to weigh the value of your home equity, and what is more important, building that equity, or taking the cash out for debt consolidation, home improvements, etc...Many people take the equity out of their home at every chance they get, and while it is helpful in the short term, usually to alleviate the pressure of bad spending habits, it will hurt any plans of long term investments and profiting from your home's value.

One thing you will want to check on is whether your loan has a "pre-payment penalty". Many lenders will charge you this penalty if you refinance within a short period of time.

Refinancing costs money. The phrase “no closing cost loan” is often used but may not be totally accurate. “No closing cost loans” will usually carry a slightly higher rate and a prepayment penalty.

Clear and well-defined goals are critical when undergoing any financial transaction. Be sure you understand your goals that the refinance will accomplish. Once you have defined your goal, clearly communicate this to your mortgage professional.

Refinancing your mortgage is a great way to lower your overall monthly bill payments by consolidating other, higher-interest debt. For example, let's assume you have a significant amount of credit card debt. Provided there is enough equity in your home, you could typically refinance your mortgage at a lower interest rate and use that money to pay off the credit card balance. A mortgage loan officer can consult with you regarding current mortgage interest rates, and to help you develop a strategy for lowering the amount of money you spend on your monthly bills.

Refinancing is an excellent way to lower your payment. This opportunity can occur because rates are lower, your credit has improved or there is a loan product that better suits your needs.

» DISCLAIMER: The information contained in this article on 'What should I know about refinancing?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.