Five Steps to Finding the Best Mortgage Refinance Rates

Even if you are current on your payments, home refinancing can be tricky. Depreciated home values can negatively impact your loan to value ratio, potentially locking you out of the best mortgage refinance interest rates. But doing nothing can cost you real money. Shopping is the only way to know if you can do better than what you have and by how much. So, follow these five steps to save time and to get the best deal on mortgage refinance rates.


1. Refinance Interest Rate: Set a Target

The first thing to do is get a ballpark estimate of what refinance rate would justify the time, costs, and paperwork involved. You can do this easily with a refinance calculator. Simply plug in your current mortgage terms, then do some "what-ifs" with the calculator. You will quickly be able to see what makes sense for your particular scenario.

The reason this step is so important is that it gives you bargaining power; you know what you need and can ask for it instead of just waiting to see what the best offers are. It is loosely analogous to knowing the dealer invoice price before going car shopping. And if you know that the only way a deal would make sense is if you pay the closing costs up front, you can consider if you have the cash on hand to go forward.

2. Home Loan Possibility: Prepare for the Appraisal

There is a lot of chatter in the market right now about appraisals, both how they are being done, and what is fair. Since loans are based on appraisals, and appraisals are based not only on the house itself but the area in which it is located, even well-maintained homes may be under-appraised if the neighborhood has a high percentage of foreclosures.

If you strongly disagree with the appraisal done by the appraiser, you may ask for (and pay for) a second opinion. Keep in mind that since March of 2009, the law does not allow anyone with a hand in the transaction--the loan agent, Realtor, or homeowner--to choose or even contact the appraiser once the process has began, in order to assure that the appraisal is completed by a disinterested party. That, however, does not mean that the appraisal will be conducted by a competent party, and so even now there is legislation on the table to suspend this law.

3. Mortgage Preparation: Gather Paperwork

You will need most, if not all of the same information for home refinancing that you did for your original loan, so in anticipation of finding a good deal, gather your most current pay stubs, income tax return, information on both first and second mortgages, and a copy of your credit report showing credit card and other financial obligations. If you have court-mandated payments for spousal or child support, be sure to have those handy too.

4. Home Loan Shopping: Contact lenders

Your first contact should be with your current loan servicer. Since it already has the details of your existing mortgage, it will be able to make a preliminary go or no go decision even before receiving your most current documentation.

In the meantime, the Internet makes shopping for mortgage refinance rates a snap. Go to one or more of the online comparison sites where by completing a few fields of an online form, you set in motion communication with many prospective lenders when you click submit.

Additionally, if you do not owe more than 105% of the current market value of your home on your first mortgage, you are not delinquent, and your note holder is Fannie Mae or Freddie Mac, you may be eligible for refinancing through the Making Home Affordable program.

In any case, the more lines you cast, the more likely you will be to find a refinance deal that meets your needs.

5. Final Refinance Decision: Compare Offers

This is another area where the Internet can save you tons of time (and mathematical errors). Use an online loan comparison calculator to compare offers from all sources quickly and easily. Similar to an online refinance calculator, a loan comparison calculator simply analyzes one loan against another.

Although interest rates are low, they are dynamic. And although there is tremendous pressure on lenders to keep homeowners in their homes, lenders' are requirements are also dynamic. You have nothing to gain by waiting to see if you can get a better deal, so act now.


Posted By :
Lorraine Watkins is a regular contributor to business and education websites. She is a notary in California specializing in loan documents. She holds an MA in English from California State University, East Bay.

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