The Quirks of Refinancing

: Chris Lee Law Firm

  Filed under: Refinancing

refinancingWith all the talk about the federal refinancing program for struggling homeowners, many people not in immediate mortgage debt danger have had a renewed interest in refinancing. In the past, refinancing a mortgage was fairly difficult and some even found it impossible. These days, lenders have been encouraged to open up more refinancing offers for homeowners, but there is still much to consider before signing the bottom line.

Consider This

Many homeowners go into refinancing with the wrong idea about the process. Not only does refinancing typically cost a few thousand in out of pocket closing costs, not all refinancing offers will bring the desired outcome. Refinancing is meant to do one thing, lower the monthly payment. In order to get the best outcome when refinancing a mortgage it is important to consider the offer being presented by the lender.

Is the rate low enough to produce a significant decrease in monthly payment? The general rule is that refinancing should only be done if the interest rate will be lowered by at least one full percentage point or if the rate is going from variable to fixed, otherwise the savings could be miniscule.

Are the out of pocket costs affordable? If you can’t afford to pay the upfront closing costs on the new loan, refinancing may not be your mortgage debt solution. Rather than roll the costs of closing on a refinancing offer into the loan, consider loan modification or a forbearance first.

Is the process  worthwhile for the hassle? Remember that refinancing a  loan will create a new loan, which means the loan term starts from zero. This means that you will lose any progress towards the life of the loan and start again from the beginning.



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