WHAT'S THE BEST LOAN FOR ME?

How do I get refinancing?

A definition of refinancing

"Refinancing" is a misleading term, because it suggests to many homeowners a process of changing or altering their mortgage. In fact, refinancing is taking out a new mortgage, and using the money obtained to close out - or pay off - your current mortgage. That means refinancing involves many of the same steps involved as in applying for and getting your first mortgage - and can also involve some of the same expenses. Depending on how the terms of mortgages available now, compare with the terms of your current mortgage, refinancing can save you a significant amount of money.

The costs of traditional refinancing

Making sense of refinance

Refinancing will make the most sense for you, if your current mortgage has a higher interest rate than current interest rates. If you refinance with a lower interest rate, you'll pay less each month - even if your new mortgage is for the same amount. Traditionally, deciding whether to refinance or not has meant balancing the savings of a lower monthly payment against the costs of refinancing. Recently, lenders have introduced "no-cost" and low-cost refinancing packages that minimize or completely eliminate the out-of-pocket expenses.

How do I decide?

No resource could cover every good reason to refinance a home -but here are a few common reasons homeowners choose to get a new mortgage

1. Save money on interest rates.
If you obtained your current mortgage when interest rates were considerably higher than now, refinancing could make sense for you. Refinancing at a lower rate will reduce your monthly payments, (if you plan to stay in your home for a reasonably long time) these lower payments will more than make up for the costs of refinancing.
How much lower should interest rates be?That depends on the refinancing costs. Lenders general rule-of-thumb was a difference of 2 percent or more, before refinancing made sense. But with the newer low-cost and no-cost refinancing options, refinancing can make financial sense even with a smaller difference in interest rates - be sure to consult a mortgage lender for a more accurate and detailed analysis before you make your decision.

2. Convert an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
You may have chosen an ARM for its lower initial interest rate. Converting your ARM to a conventional fixed-rate mortgage can make sense if rates are low, for the consistancy of monthly payments with a fixed-rate mortgage.

3. Convert an adjustable-rate mortgage (ARM) to an ARM with lower rates or better features.
Most ARMs have caps, that limit the amount the interest rate or monthly payments can increase.

You may want to look for an ARM that offers you better protections than your current loan - which deliver significant savings as well as make you feel more financially secure. ARMs interest rates fluctuate with prevailing market rates, you may currently have one that's tagged to higher indices - and carries a higher interest rate - than other ARMs currently available.

4. Build your equity faster - Your financial resources have probably improved since you obtained your mortgage, consider converting to a mortgage with a shorter term - perhaps a 15-year mortgage instead of a 30-year mortgage. The monthly payments will be higher, but your overall interest costs will be substantially lower. If current interest rates are below the rates of your existing mortgage, your monthly payments may not increase. This can be very beneficial as you near retirement, a shorter loan term may enable you to own your home before you retire.

5. Convert some equity to cash -If you've had your mortgage for some time, you've substantially reduced the outstanding principal on your loan. You'll be able to finance a considerably larger amount than you owe on your current mortgage, use the difference for major purchases, or to finance college costs.

With all the options available today, there's no substitute for gathering information, working the numbers and talking with experts to see if refinancing makes sense for you. Many lenders are offering no-cost and low-cost refinancing, which involve little or no out-of-pocket costs (low-cost refinancing may involve about $500 in costs). These loans compensate for no up-front expenses by a somewhat higher interest rate, or by including the costs of refinancing in the amount of the loan.

If you're seriously considering refinancing, call the lender who holds your current mortgage, he or she may be willing to waive some fees for items such as, title search, surveys, inspections and other certifications.