Mortgage Refinance

Got a mortgage? Looking to lower your monthly payments, take out some cash or tweak the terms? No worries.  A mortgage refinance is one of the easier things to accomplish in today's financial world.

Refinancing basically means you pay off your existing mortgage and replace it with a new one -- with luck at better terms. The trick is to first figure out if a mortgage refinance is worth the bother and possible expense. Here are key reasons people refinance, and what might or might not work for you.

1) To get a lower interest rate. Naturally, this is tougher to accomplish if rates are rising or flat. But even if rates are headed up, you might lower your rate by switching to a different type of loan (an adjustable as opposed to a fixed-rate loan, for example).
 
2) To build equity faster. Some folks refinance into a shorter term loan so they can build equity in the underlying property more quickly. While the payments on a 15-year loan, for example, are higher than a 30-year loan, you pay less in interest and more toward the principal loan balance (thus building 'equity').

3) To change into a different type of loan. You could choose a shorter term, or longer term; a variable that adjusts in 3 years, 5 years, or more. Or move to a fixed rate from an ajustable. There are lots of possibilities.

4) Leverage your better credit rating. If your credit rating has improved, you might qualify for better terms, even if rates haven't dropped.

5) Cash in some of the equity you've built up. While this is potentially dangerous if home values fall and interest rates rise, one of the most popular reasons to 'refi' a mortgage is to gain cash to use for other purposes. A $100,000 mortgage on a home that's now worth $400,000 gives you $300,000 in equity to pay with. If this is your main goal, you should also consider a simpler home equity line of credit that avoids the need to refinance your mortgage (but still has tax-deductible interest).

Action Steps

The best contacts and resources to help you get it done

Play the mortgage refinance competition Mortgage refinance is hugely competitive. Lots of lenders want your business -- especially if your credit history is strong, income and assets solid and you've already built equity in your home.

I recommend:  The first place to look is the lender who holds your existing mortgage. They approved you once, and (depending on your payment history) might eagerly do so again. And check the refinancing offers you probably get in the mail from lenders of all kinds who obtain names from public real estate ownership records. Just be sure to read the fine print and make sure you clearly understand all of the fees and costs involved. A few places to look include Countrywide, Amerisave, Ditech and GMAC Mortgage.

Shop and compare online The web makes it easy to see what's being offered.

I recommend:  These mortgage sites can help you shop and compare refinancing rates and terms: LendingTree, E-Loan, PickaMortgage and HFC.

Find out if refinancing makes sense Ask yourself these questions: 1) How long do you plan to stay in the home? 2) How many years remain on your existing mortgage? 3) Can I afford the costs involved? 4) Will I save money over the life of my loan?

I recommend:  The E-Loan website offers a handy Refinance Review that you can use to help decide if refinancing makes sense, and what type of loan would work best to meet your goals. FannieMae, which provides funds for housings but does not make loans directly to borrowers, offers helpful information about when refinancing makes sense.

Tips & Tactics

Helpful advice for making the most of this Guide

• Things most lenders will require include income verification, information on debts and assets, account numbers and balances for savings and investments, a title search, copy of the site survey and a property appraisal.
• Possible fees and charges include an application fee, title search and title insurance fees, appraisal costs, loan origination fees, discount points, and legal services fees.
• You can lower your rate by paying 'discount points' up front. Discounts points are essentially pre-paid interest; the more you pay now, the less you have to pay in regular monthly payments. Thus, loans with no points will generally carry a higher interest rate, all other things being equal.