Should You Consider a Mortgage Refinance?

· A mortgage refinance involves taking out another loan to pay off your current mortgage (and sometimes other bills, like credit card debt).
· Because refinancing costs you money up front in closing costs and fees, you should have a very good reason to refinance your mortgage.
· Your first step in refinancing is ensuring you really are saving money by doing this.
· Look at all the costs inherent in your refinance and compare them to either the money you anticipate saving or the lowered overall monthly expense to your budget and decide whether or not it is worth pursuing.

If Your Answer is Yes:

· Start not by talking to a loan officer but rather by getting your own house in order. If you have open credit accounts you can close, close them.
· Pay off any bad debt you can, and do everything possible to ensure your credit report looks good.
· Because a mortgage refinance is going to save you money by shaving fractions of points from your current loan interest rate, everything you can do to help yourself get a more favorable rating is going to help you, often significantly.
· While you're working to clean up your credit, organize your paperwork, finances, and budget. A refinance loan is just another loan, in essence, and the bank is going to want exactly the same things they asked you for when you took out your current loan.

Tips:

· Cost-compare several different loan companies, and calculate the cost of your refinance loan carefully so you compare them fairly.
· Your cost is not just the amount of the mortgage plus interest; it also should take into consideration points paid, closing costs, private mortgage insurance (PMI) costs, and lost tax savings.
· If you have some cash, you can drop the cost of most new mortgages considerably by paying some points and making sure that you retain at least 20% equity in your home; that's the point at which you will no longer have to pay for PMI.

A Word of Caution:

· Some lenders you look at may offer a no points or closing costs refinance. Scrutinize these offers carefully. If their refinance is significantly lower than their competitors, look for hidden costs and higher interest rates, where they will have to make up some of that lost profit.
· In some cases, minor problems later with a late payment or two will immediately increase your interest rate; in other cases, fees are tucked into the fine print. Some of these companies are not stable or are simply scams, so check them out online too.

Don't do a Mortgage Refinance If:

· You're not going to be in your house long enough to break even after up-front expenses are met.
· You're looking at it as a quick-fix for short-term financial problems, especially if you aren't either realizing a savings on your interest rate or taking out a fixed-rate loan to get rid of an ARM that is growing more expensive.

Final Considerations:

· If your problem is a cash-flow issue - you're not getting enough in to pay for what's going out - it might be better to shop for a cheaper house than to refinance the one you're in.
· Ultimately, make sure you know what you're getting into when you refinance. A hasty decision could cost you much more money - or even your home.