Refinancing Guide

Refinancing basically means that you’re securing a new loan in order to pay off your previously existing loan. In this economy, refinancing is endorsed and encouraged by financial advisors of all sorts; all of them saying that this is the best time to do it. President Obama himself has remarked that everyone should take this opportunity to refinance as it might save them thousands of dollars on their mortgages.

Refinancing is a good way to rework your loan into something with a longer term and, perhaps, better rates. Indeed, mortgage rates haven’t been this good in quite some time. No doubt it is a direct result of the downtrodden economy seeking to secure investments in all sectors but most importantly in real estate. Real estate is a prime investment to hold onto. It is secure and tangible enough that most people, banks and owners alike, feel safe enough to divvy up a good portion of their investment money and put it into these holdings. Learning how to refinance is an important thing if you want to take advantage of this option.

A Short Guide on Refinancing

  • Refinancing isn’t for everyone.
    It might be a really good option right now what with record low mortgage rate but, if the math works against you, it can also cost you more money than save it. So determine first whether to refinance or not by doing a little calculation on how much time it’ll take for your savings to break even with what refinancing might cost you. Overall costs are more important than what the difference is between rates. You should judge if the long-term costs are worth it or not.
  • Instead of focusing on the rates or the APR (Annual Percentage Rate), look at the details.
    The length of the term is important as it will indicate just how much time it’ll take you to pay off the loan. Short-term loans often come with lower rates since they’re less costly to cover for banks than the long-term mortgages but beware of higher monthly fees. Another thing to consider is the type of rate being offered. It may be ‘fixed’ or ‘variable’. Determine which would be best for you and remember that while the rates are low now, there is no other way but up. And the one detail you should never forget: fees. Refinancing might come in packages that say ‘no-cost’ or ‘zero points’ but while they’re not actually lying, they’re never entirely true either. Fees must be paid to your lender or broker. No cost refinancing exists but the definition might be a little different from yours.
  • You can still refinance with bad credit.
    Every financial institution out there can easily access your credit history and see if you have any debt defaults or history with bankruptcy. This isn’t an entirely bad thing when trying to take out a loan because some banks and alternative lenders actually seek out people with bad credit. This is because they can charge you with more fees and raise your rates and you really can’t do anything about it. The same is true with refinancing. Refinancing with a bad credit usually means higher refinancing fees but not all institutions are heartless bloodsuckers. Shop around and case refinancing rates from different banks. You might be surprised at what you find. Fees will still be higher than normal but there are those that offer reasonable enough rates. Paying just a little more may save you a lot of money in the future.

A little consideration will go a long way

A mortgage refinance guide can only take you so far. Common sense is still the most important refinancing guide you can follow. Well, that and a healthy appreciation for financial blurbs in your daily paper. As mentioned before, there are several reasons why you shouldn’t refinance. Think about those reasons carefully while considering the refinancing guidelines. Sometimes, just because a good thing is there for the taking doesn’t mean that it’s the right thing for you.


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