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Mortgage Refinancing Guide

Home-Equity-Loans.org

Find out when and how to act

Step 1: Decision Process | Step 2: Preparation | Step 3: Loan Options

Step 3: Your Home Equity Loan Refinancing Options
The range of your choices are probably greater than when you acquired your initial home mortgage.  Besides 15 and 30 year fixed rate mortgages, there are adjustable rate mortgages (ARM's) with corresponding adjustment periods, government loans through the VA or FHA, loans containing private mortgage insurance, and second mortgage combo loans without PMI. 
 

Which Loan Should I Apply For?
The majority of homeowners lean towards fixed rate mortgages because of the peace of mind that comes with knowing precisely how much interest will be paid each month - ARM's are too much of a gamble for most people.  Sometimes people apply for fixed rate mortgages because they are under the assumption that fixed rates only come with 15 or 30 year mortgages.  This is a misconception, however, because a fixed rate can be used on any loan, no matter its lifetime. 

Like fixed rate mortgages, adjustable-rate mortgages can come with a 15 and 30 year lifetime. They are enticing due to the wide variation of adjustment periods they offer - Some adjust every year, while others only have the possibility of changing every three, five, or, seven years.  Those with the most adjustment periods initially come with lower rates than other mortgages.  Yet, even the ARM's with infrequently changing adjustment periods can have lower rates than some fixed mortgages.  Both have their advantages:  The frequently adjusting mortgage will have the lowest possible rate from the get go, while the infrequently adjusting mortgage will more greatly facilitate refinancing later on down the road. 

The only ways to avoid PMI, which can cost around $150 per month, is to refinance your mortgage for no more than 80% of your homes current appraisal, or to make a down-payment of at least 20%. Another option is to take up to 10% more of the equity already built into your home with a second mortgage, and use that in place of a large down-payment.
                                                                                                                                   

Which Lender Should I Go Through?
Always begin with your current lender.  They will want to keep your business, especially if your initial mortgage was relatively recent (Most lenders do not make large sums of profit until the mortgage has been running for a few years).  The plus side to this is that many lenders will create spectacular refinancing packages, especially if you drive a hard bargain.  They will usually be inclined to waive many of the refinancing fees - and might just waive all of them if you have demonstrated being a trustworthy borrower. 

Before you decide to go elsewhere, make sure you get your current lender to quote a refinancing package for you.  After obtaining more quotes from other lenders, use the quote from your original lender (if it is lower than the others) as a bargaining tool.  Remember, there are many places where you can go to refinance - banks, mortgage companies, and credit unions. But why run around wasting energy.  You can go through Home Equity Loans.org and get four quotes through the Lending Tree Network without ever leaving the comfort of your soon-to-be-refinanced home.

The word on mortgage brokers is that they do not actually fund loans.  They are the middle men who sort the paperwork while searching for lenders.  Of course they do not search the entire home equity loan market.  Rather, they will most likely go through lenders who they are familiar with and have done business with in the past. 

Keep in mind that finding the lowest possible home equity loan rate is not the only object of concern.  If you decide to go through a broker, make sure they are fast, reliable, and honest.  Although one never really can know their brokers character without a doubt, you can definitely inquire local real estate agents and people you know who have refinanced recently.  They will be more able to give you good references of those brokers who have proved themselves in the past. 


How Should I Compare Home Equity Loans?
First and foremost, compare their annual percentage rates.  Known as the loans APR, this is the percentage amount of your loan credit that you will have to pay as interest over the length of a year.  It may also include loan fees resulting from discount points on your mortgage. 

It is Federal law for lenders to quote an APR within three days of a loan application submission.  By comparing APR's you can determine which mortgage will cost you more money.  The bad news is that the APR is quoted under the assumption you will keep the loan for its full term.   If you refinance or pay off the mortgage ahead of time, your APR will likely remain - Especially if you have an early-payment clause in your original mortgage.

Because not every refinancing fee is included in the APR (depending on the lender), you should inquire your lender about providing a breakdown of the closing costs.  This way, you can really see just how low your APR quote actually is. 

If you are seriously contemplating an ARM, play the what-if game and hypothetically create the worst-case scenario possible.  Usually, ARM's come with "payment shock" clauses, which give limits as to how high APR's and monthly installments can climb.  It is a good idea to do the math anyways, and see what kind of situation you would be in if your mortgage hit the highest possible rate.  The bottom line is that before you pick the kind of home equity loan you want to refinance with, study the refinancing guide here on Home Equity Loans.org and get informed! 

 

Step 1: Making a Decision | Step 2: Be Prepared | Step 3: Loan Choices

 

Home Equity Loan Refinancing Guide

Home Equity Loan Refinancing Economic Terms & Definitions
Home Equity Loan Refinancing Refinance Mortgage 101
Home Equity Loan Refinancing Refinance Options
Home Equity Loan Refinancing Refinancing? Save $$ On Title Insurance
Home Equity Loan Refinancing Should You Refinance?
Home Equity Loan Refinancing When to Refinance?
Home Equity Loan Refinancing Step 1: Making a Decision
Home Equity Loan Refinancing Step 2: Be Prepared
Home Equity Loan Refinancing Step 3: Loan Choices

 

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