Use Refinance Calculator Tools to Negotiate A Lower Rate With Your Lender

By Karen Lawson
Calculators for Mortgages Columnist

Email this Article | Format for printing

Loan Comparison is Important for Finding the Best Refinance Options

Reasons for refinancing and personal financial circumstances are widely variable; it's important to consider all aspects of your current situation and future plans in order to identify mortgage refinance options that provide maximum benefits. Researching lenders and making a loan comparison between your current mortgage and potential refinancing terms can help you get started. Using a mortgage refinance calculator can help you compare refinancing options with your current mortgage loan, or you can compare refinancing scenarios to help find the best mortgage lender and loan for your needs.

Your reason(s) for refinancing can help identify your best refinance loan options. Reasons for refinancing include:

• Reducing your mortgage rate: This can lower monthly payments and help you pay off your mortgage sooner. How much you can save depends on how long you plan to keep your home, refinancing rates you qualify for, and additional amounts paid for refinancing including closing costs and points.
• Eliminating undesirable mortgage features:If you have a sub-prime mortgage with a high rate, or if you have negative amortization, interest-only payments or wildly fluctuating interest and payment adjustments, refinancing to a fixed rate mortgage stabilizes your P& I payment and assists with repaying your mortgage loan faster.
• Cash-out refinancing: If you have enough home equity (the difference between what your home is worth and the amount you owe in mortgage loans) you may be able to refinance for additional cash to pay for home improvements or paying off consumer debt. The availability of cash out refinancing depends on your credit, your home value, and real estate market trends in your area. Lenders typically limit refinancing amounts to 85% of your home's current appraised value. However, be prepared to pay stiff surcharges on conventional financing over 80%. FHA does do cash out refinancing to 85% with no penalty.

Negotiating with Your Current Mortgage Lender

Mortgage lenders compete for your business, so if you're looking to refinance, it's a good idea to approach your existing mortgage lender. Before doing so, get refinance quotes from competing lenders. You can use favorable estimates as a negotiating tool when shopping for a mortgage refinance. Online mortgage calculators can help you compare loan terms and costs, but actual refinance offers from other lenders can really push your current mortgage lender to do better. If not, move on to the next best offer.

Your Credit and Mortgage Refinance Options

Mortgage lenders typically offer their best rates to borrowers with FICO credit scores of 740 or more. Know your credit scores before contacting lenders. You can order free annual credit reports and purchase credit scores from all three credit bureaus here. Review your credit reports carefully for incorrect information that may negatively impact your credit scores. If you've recently filed for bankruptcy or experienced other major financial challenges, taking time to improve your credit score may help you get better refinance terms later.

The next step is establishing the maximum amounts you can afford to borrow. Use a mortgage affordability calculator for determining how much you can borrow based on projected P&I payment , interest rate, and repayment term. If you have compromised credit, you may be able to get a lower mortgage rate by increasing your down payment amount or paying points. A point is one percent of your new mortgage amount; one point on a $250,000 mortgage is $2,500. When using a mortgage refinance calculator, remember to include all costs applicable to your loan comparison.

Refinance Challenges? Check out Government Refinance and Modification Options

If you owe more on your home than it's worth, or otherwise cannot qualify for a mortgage refinance, please look into getting a government-sponsored refinance or mortgage modification. Contact your mortgage lender or check out this Web site for more information. You can also contact your current mortgage lender for details on qualifying for these programs.

 

About the Author
Karen Lawson is a freelance writer with extensive background in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.