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Is It Time to Re-Finance?

Whether or not to re-finance is a question homeowner may ask themselves many
times while they are living in their home. Re-financing is essentially taking
out one home loan to repay an existing home loan. This may sound odd at first
but it is important to realize when this is done properly it can result in a
significant cost savings for the homeowner over the course of the loan. When
there is the potential for an overall savings it might be time to consider
re-financing. There are certain situations which make re-financing worthwhile.
These situations may include when the credit scores of the homeowners improve,
when the financial situation of the homeowners improves and when national
interest rates drop. This article will examine each of these scenarios and
discuss why they may warrant a re-finance.

When Credit Scores Improve

There are currently so many home loan options available, that even those with
poor credit are likely to find a lender who can assist them in realizing their
dream of purchasing a home. However, those with poor credit are likely to be
offered unfavorable loan terms such as high interest rates or variable interest
rates instead of fixed rates. This is because the lender considers these
homeowners to be higher risk than others because of their poor credit.

Fortunately for those with poor credit, many credit mistakes can be repaired
over time. Some financial blemishes such as bankruptcies simply disappear after
a number of years while other blemishes such as frequent late payments can be
minimized by maintaining a more favorable record of repaying debts and
demonstrating an ability to repay existing debts.

When a homeowner's credit score improves considerable, the homeowner should
inquire about the possibility of re-financing their current mortgage. All
citizens are entitled to a free annual credit report from each of the three
major credit reporting bureaus. Homeowners should take advantage of these three
reports to check their credit each year and determine whether or not their
credit has increased significantly. When they notice a significant increase,
they should consider contacting lenders to determine the rates and terms they
may be willing to offer.

When Financial Situations Change

A change in the homeowner's financial situation can also warrant investigation
into the process of re-financing. A homeowner may find himself making
considerably more money due to a change in jobs or considerably less money due
to a lay off or a change in careers. In either case the homeowner should
investigate the possibility of re-financing. The homeowner may find an increase
in pay may allow them to obtain a lower interest rate.

Alternately a homeowner who loses their job or takes a pay cut as a result of a
change in careers may hope to refinance and consolidate their debt. This may
result in the homeowner paying more because some debts are drawn out over a
longer period of time but it can result in a lower monthly payment for the
homeowner which may be advantageous at this juncture of his life.

When Interest Rates Drop

Interest rates dropping is the one signal that sends many homeowners rushing to
their lenders to discuss the possibility of re-financing their home. Lower
interest rates are certainly appealing because they can result in an overall
savings over the course of the loan but homeowners should also realize that
every time the interest rates drop, a re-finance of the home is not warranted.
The caveat to re-financing to take advantage of lower interest rates is that
the homeowner should carefully evaluate the situation to ensure the closing
costs associated with re-financing do not exceed the overall savings benefit
gained from obtaining a lower interest rate. This is significant because if the
cost of re-financing is higher than the savings in interest, the homeowner does
not benefit from re-financing and may actually lose money in the process.

The mathematics associated with determining whether or not there is an actual
savings is not overly complicated but there is the possibility that the
homeowner will make mistakes in these types of calculations. Fortunately there
are a number of calculators available on the Internet which can help homeowners
to determine whether or not re-financing is worthwhile.

Understanding Re-Financing

Understanding the process of re-financing can be quite dizzying. Homeowners who
are considering re-financing might initially be overwhelmed by the number of
options available to them. However, after taking some time to educate
themselves about the process, they will likely find the process is not nearly
as daunting as they had imagined. This article will discuss some of the options
available to those interested in re-financing as well as some of the important
factors to consider in order to determine whether or not refinancing is

Consider the Options

Homeowners have quite a few options available to them when they are considering
the possibility of re-financing their home. The most significant decision is the
type of loan they will choose. Fixed rate mortgages and adjustable rate
mortgages (ARMs) are the two main types of mortgages the homeowners will likely
encounter. Additionally there are hybrid loan options available.

As the name implies, a fixed rate mortgage is one in which the interest rate
remains constant throughout the duration of the loan period. This is an
especially favorable type of loan when the homeowner has credit which is
sufficient enough to lock in a low interest rate.

ARMs are mortgages where the interest rate varies during the course of the loan
period. The interest rate is usually tied to an index such as the prime index
and is subject to rises and falls in accordance with this index. This is
considered a riskier type of loan and is therefore often offered to homeowners
who have less favorable credit scores.

Although ARMs are considered somewhat risky there is usually a certain degree
of protection written into the loan agreement. This may come in the form of a
clause which limits the amount the interest rate can increase, in terms of
percentage points, over a fixed period of time. This can protect the homeowner
from sharp increases in the interest rates which would otherwise considerably
raise the amount of their monthly payments.

Hybrid loans are mortgages which combine a fixed element with an adjustable
element. An example of this type of loan is a situation where the lender may
offer a fixed interest rate for the first five years of the loan and a variable
interest rate for the remainder of the loan. Lenders typically offer a lower
introductory interest rate for the fixed period to make the mortgage seem more

Consider the Closing Costs

The closing costs associated with re-financing should be carefully considered
when deciding whether or not to re-finance the home. This is significant
because when homeowners re-finance their home they are often subject to many of
the same closing costs as when they originally purchased the home. These costs
may include, but are not limited to appraisal fees, application fees, loan
origination fees and a host of other expenses. These costs can be quite
significant. The closing costs will be significant when the homeowner considers
the overall savings associated with re-financing.

Consider the Overall Savings

When deciding whether or not to re-finance, the overall savings is one factor
the homeowners should carefully consider. This is important because
re-financing is typically not considered worthwhile unless it results in a
financial savings. Although some homeowners refinance to lower monthly costs
and are not concerned with the overall picture, most homeowners consider
whether or not they will be saving money by refinancing.

The amount of money the homeowner will save when re-financing is largely
dependent on the new interest rate in relation to the old interest rate. Other
factors come into play such as the remaining balance of the existing loan as
well as the amount of time the homeowner intends to stay in the home before
selling the property. It is important to note that the amount of money saved by
negotiating a lower interest rate is not equal to the entire savings. The
homeowner must determine the closing costs associated with re-financing and
subtract this sum from the potential savings. A negative number would indicate
the new interest rate is not low enough to offset the closing costs. Conversely
a positive number indicates an overall savings. With this information the
homeowner can decide whether or not he wishes to re-finance.

Benefits of Re-Financing

There are a number of benefits which may be associated with re-financing a
home. While there are some situations where re-financing is not the right
decision, there are a host of benefits which can be gained from re-financing
under favorable conditions. Some of these benefits include lower monthly
payments, debt consolidation and the ability to utilize the existing equity in
the home. Homeowners who are considering re-financing should consider each of
these options with their current financial situation to determine whether or
not they wish to re-finance their home.

Lower Monthly Payments

For many homeowners the possibility of lower monthly payments is a very
appealing benefit of re-financing. Many homeowners live paycheck to paycheck
and for these homeowners finding an opportunity to increase their savings can
be a monumental feat. Homeowners who are able to negotiate lower interest rates
when they re-finance their home will likely see the benefit of lower monthly
mortgage payments resulting from the decision to re-finance.

Each month homeowners submit a mortgage payment. This payment is typically used
to repay a portion of the interest as well as a portion of the principle on the
loan. Homeowners who are able to refinance their loan at a lower interest rate
may see a decrease in the amount they are paying in both interest and
principle. This may be due to the lower interest rate as well as the lower
remaining balance. When a home is re-financed, a second mortgage is taken out
to repay the first mortgage. If the existing mortgage was already a few years
old, it is likely the homeowner already had some equity and had paid off some
of the previous principle balance. This enables the homeowner to take out a
smaller mortgage when they re-finance their home because they are repaying a
smaller debt than the original purchase price of the home.

Debt Consolidation

Some homeowners begin to investigate re-financing for the purpose of debt
consolidation. This is especially true for homeowners who have high interest
debts such as credit card debts. A debt consolidation loan enables the
homeowner to use the existing equity in their home as collateral to secure a
low interest loan which is large enough to repay the existing balance on the
home as well as a number of other debts such as credit card debt, car loans,
student loans or any other debts the homeowner may have.

When re-financing is done of the purpose of debt consolidation there is not
always an overall increase in savings. Those who are seeking to consolidate
their debts are often struggling with their monthly payments and are seeking an
option which makes it easier for the homeowner to manage their monthly bills.

Additionally, debt consolidation can also simplify the process of paying
monthly bills. Homeowners who are apprehensive about participating in monthly
bill pay programs may be overwhelmed by the amount of bills they have to pay
each month. Even if the value of these bills is not worrisome just the act of
writing several checks each month and ensuring they are sent, on time, to the
correct location can be overwhelming. For this reason, many homeowners often
re-finance their mortgage to minimize the amount of payments they are making
each month.

Using the Existing Equity in the Home

Another popular reason for re-financing is to use the existing equity in the
home. Homeowners who have a considerable amount of equity in their home may
find they are able to cash out some of this equity for other purposes. This may
include making improvements to the home, starting a business, taking a dream
vacation or pursuing a higher degree of education. The homeowner is not limited
in how they can use the equity in their home and may re-finance a home equity
line of credit which can be used for any purpose imaginable. A home equity line
of credit is different from a loan because the funds are not disbursed all at
once. Rather the funds are made available to the homeowner and the homeowner
can withdraw these finds at anytime during the draw period.

Re-Financing with Bad Credit

Many years ago, it would have been extremely difficult for those with bad
credit to obtain a mortgage loan in the first place. However, today there are
so many loan options available and so many ways for lenders to protect
themselves that those with bad credit can not only find a suitable mortgage but
can also find appealing re-financing options as well.

Those with poor credit should carefully consider whether or not re-financing is
ideal for them at the present time but the process is not much different for
them as it is for those with good credit. Those with bad credit who want to
learn more about re-financing should consult a mortgage advisor who specializes
in mortgages for those with bad credit. Additionally the homeowner should
carefully evaluate their credit score and whether or not it has improved.
Finally the homeowner should evaluate their options carefully to ensure they
are making the best possible decision.

Consult a Mortgage Advisor

Consulting with a mortgage advisor is recommended for those with poor credit.
These homeowners may be knowledgeable about the process of re-financing but
their situation warrants consulting with an industry expert. This is important
because a mortgage advisor who specializes in obtaining mortgages and
re-financing for those with bad credit will likely be very knowledgeable about
the types of options available to the homeowners.

When consulting with the mortgage advisor, the homeowners should be completely
honest about their financial situation and should provide the expert with all
of the information he needs to assist them in finding an ideal re-financing
agreement. Being completely candid will be very helpful in enabling the
mortgage advisor to assist the homeowner in the best way possible.

Consider Whether or Not Your Credit has Improved

Homeowners with bad credit should carefully consider whether or not their
credit has improved since the original mortgage was secured. Homeowners who
have documented proof of past credit scores can compare these scores to current
values. Each citizen is entitled to one free credit report per year from each of
the major credit reporting agencies. Homeowners can obtain these reports for use
in making comparisons to the previous credit scores. Imperfections on the credit
report such as bankruptcies, delinquent or missed payments and other
transgressions do not remain on the credit report.

These blemishes are often erased from the credit report after a certain period
of time. The amount of time the transgression remains on the report is
proportional to the severity of the offense. For example a bankruptcy will
remain on the credit report for significantly longer than a late payment. In
examining the credit report, homeowners should consider the overall credit
score but should also note whether or not previous offenses are being erased
from the credit report in a timely fashion.

Evaluate Re-Financing Options Carefully

Once a homeowner has tentatively made a decision to re-finance the mortgage, it
is time to start considering the many options that are available to the
homeowner during the process of re-financing. Most homeowners mistakenly
believe one factor of the re-financing process they have no control over is the
interest rate. While this rate is largely dependent on the homeowners credit
score, even those with poor credit have the ability to lower their interest
rate by purchasing point. A point is typically equally to 1% of the total loan
amount and may translate to a 1/2" of a percentage point on the interest rate.
When deciding whether or not to purchase points, the homeowner should carefully
consider the amount of time it would take the homeowner to recoup the cost of
purchasing the points. This will help to determine whether or not it is
worthwhile to purchase one or more points when re-financing.

Homeowners will also have options in terms of the type of loan they choose when
re-financing. Common options include fixed rate mortgages, adjustable rate
mortgages (ARMs) and hybrid mortgages. The interest rate remains constant with
a fixed rate mortgage, adjusts with an ARM and is fixed for a period of time
and adjustable for the remainder of the loan period with a hybrid loan.

Re-Financing to Consolidate Debt

Some homeowners opt to re-finance to consolidate their existing debts. With
this type of option, the homeowner can consolidate higher interest debts such
as credit card debts under a lower interest home loan. The interest rates
associated with home loans are traditionally lower than the rates associated
with credit cards by a considerable amount. Deciding whether or not to
re-finance for the purpose of debt consolidation can be a rather tricky issue.
There are a number of complex factors which enter into the equation including
the amount of existing debt, the difference in interest rates as well as the
difference in loan terms and the current financial situation of the homeowner.

This article will attempt to make this issue less complex by providing a
function definition for debt consolidation and providing answer to two key
questions homeowners should ask themselves before re-financing. These questions
include whether the homeowner will pay more in the long run by consolidating
their debt and will the homeowners financial situation improve if they

What is Debt Consolidation?

The term debt consolidation can be somewhat confusing because the term itself
is somewhat deceptive. When a homeowner re-finances his home for the purpose of
debt consolidation, he is not actually consolidating the debt in the true sense
of the word. By definition to consolidate means to unite or to combine into one
system. However, this is not what actually happens when debts are consolidated.
The existing debts are actually repaid by the debt consolidation loan. Although
the total amount of debt remains constant the individual debts are repaid by the
new loan.

Prior to the debt consolidation the homeowner may have been repaying a monthly
debt to one or more credit card companies, an auto lender, a student loan
lender or any number of other lenders but now the homeowner is repaying one
debt to the mortgage lender who provided the debt consolidation loan. This new
loan will be subject to the applicable loan terms including interest rates and
repayment period. Any terms associated with the individual loans are no longer
valid as each of these loans has been repaid in full.

Are You Paying More in the Long Run?

When considering debt consolidation it is important to determine whether lower
monthly payments or an overall increase in savings is being sought. This is an
important consideration because while debt consolidation can lead to lower
monthly payments when a lower interest mortgage is obtained to repay higher
interest debts there is not always an overall cost savings. This is because
interest rate alone does not determine the amount which will be paid in
interest. The amount of debt and the loan term, or length of the loan, figure
prominently into the equation as well.

As an example consider a debt with a relatively short loan term of five years
and an interest only slightly higher than the rate associated with the debt
consolidation loan. In this case, if the term of the debt consolidation loan,
is 30 years the repayment of the original loan would be stretched out over the
course of 30 years at an interest rate which is only slightly lower than the
original rate. In this case it is clear the homeowner might end up paying more
in the long run. However, the monthly payments will probably be drastically
reduced. This type of decision forces the homeowner to decide whether an
overall savings or lower monthly payments is more important.

Does Re-Financing Improve Your Financial Situation?

Homeowners who are considering re-financing for the purpose of debt
consolidation should carefully consider whether or not their financial
situation will be improved by re-financing. This is important because some
homeowners may opt to re-finance because it increases their monthly cash flow
even if it does not result in an overall cost savings. There are many mortgage
calculators available on the Internet which can be used for purposes such as
determining whether or not monthly cash flow will increase. Using these
calculators and consulting with industry experts will help the homeowner to
make a well informed decision.

Is Re-Financing Always Worthwhile?

This is a very important question which all homeowners should ask themselves
both at the start and towards the end of the process of re-financing. The
answer to this question can spur the homeowner to investigate re-financing
further or convince the homeowner to table the thoughts of re-financing for the
moment and concentrate on other aspect of owning a home.

Establish Financial Goals

This should be the first step in the process of determining whether or not
re-financing is worthwhile. Without this step, a homeowner cannot accurate
answer the question of the worth of re-financing because the homeowner may not
fully understand his own financial goals. While financial goals may run the
gamut from one extreme to another the most basic question to ask is whether the
more significant goal is long term savings or increased monthly cash flow. This
is important because re-financing can usually achieve these two goals.

Do You Want to Save Money in the Long Run?

Homeowners who establish a goal of saving money in the long run should consider
re-financing options such as lower interest rates or shorter loan terms. Both of
these options can considerably lower the amount of interest the homeowner is
paying on the loan. This is significant because paying less interest will
result in a greater cost savings.

Consider an example where a homeowner has an existing debt of $100,000, an
interest rate of 6.25% and a loan term of 30 years. Just by reducing the loan
term to 15 years the homeowner can significantly decrease the amount which is
paid in interest during the course of the loan. However, this option will also
result in an increase in the monthly payments made by the homeowner. Therefore
this type of re-financing option may only be available to those who have enough
cash flow to compensate for the increase in monthly payments.

Do You Want to Increase Your Monthly Cash Flow?

Some homeowners may have a chosen goal of increasing their monthly cash flow.
For these homeowners the overall cost savings may not be as important as having
more money available to them each month. These homeowners might consider a
re-financing option in which they are able to extend their loan terms. This
means they will be repaying the existing debt over a longer period of time. The
homeowner will pay more in interest in the long run but will achieve their goal
of lower monthly payments and an increased cash flow.

How Will Re-Financing Affect Tax Deductions?

This is another serious consideration for homeowners who are interested in
investigating the possibility of re-financing. The interest paid on a home loan
is often tax deductible. A homeowner who re-finances in a manner which results
in less interest being paid annually may adversely affect their tax strategy.
The implications of this type of chance can be amplified for homeowners who
were previously just below a significant tax break line. A significant decrease
in the amount of interest paid will mean a significant decrease in the deduction
the homeowner is allowed to take. This reduced deduction can put the homeowner
in an entirely different tax bracket and could end up costing the homeowner
money in the long run. For this reason, homeowners who are considering
re-financing should have a tax preparation professional determine the
ramifications re-financing will have on their tax return before a decision is

The Decision to Re-Finance

The decision to re-finance a home mortgage is a serious decision which should
not be taken lightly. Homeowners should give this decision a great deal of
consideration to ensure they are making the best possible decision for their
financial situation and personal needs. Some factors to consider when deciding
whether or not to re-finance is the type of loan to choose, the lender to
choose, the costs associated with re-financing and the hassle of the process.

Consider All of the Options

Homeowners who are seriously considering re-financing owe it to themselves to
consider all of the options available to them. They may have a friend who
recently refinanced with a specific type of loan but this might not be the
solution for all homeowners. Each homeowner should consider their situation to
be individual and not likely to closely mirror the situations of others.

Some of the options to consider include the type of re-financing loan. The
basic options are fixed interest rates and adjustable interest rates. There are
also mortgages which combine these two options. The homeowner may have a
specific type of mortgage in mind but the lender may or may not be willing to
offer the homeowner this type of loan. Lenders are more likely to offer fixed
interest mortgages to homeowners with good credit and adjustable rate mortgages
to homeowners with poor credit.

Consider the Lender

Homeowners will also have to carefully consider the lender they select. This is
important because not all lenders are going to be willing to offer the same
interest rates and terms to the homeowner. Homeowners may have to receive
quotes from several different lenders in a short period of time to make an
accurate comparison. This is important because interest rates can change
without notice and homeowners who wait too long to make a decision may find the
rate they were originally quoted is no longer available to them.

When selecting a lender the homeowner should also consider how responsive the
lender is to their questions. This is important because a lender who does not
pay attention to the homeowner or respond to their inquiries in a timely
fashion can make the process of re-financing considerably more stressful than
necessary. Selecting a lender who offers slightly higher rates but is more
responsive may be warranted.

Consider the Cost of Re-Financing

Re-financing is not cheap. There are certain costs associated with
re-financing. These costs are typically very similar to the closing costs
associated with securing an original mortgage on a property. These costs may
include application fees, loan origination fees, property taxes, appraisal fees
and other miscellaneous items. These costs can be quite extensive and homeowners
may find they are often left paying more than the benefits they are going to
gain from re-financing. In this type of situation the homeowner should make the
decision not to re-finance because it is not a financially sound decision.

Consider the Hassle of Re-Financing

Let's face it; re-financing can be an absolute hassle. The time and energy
spent researching different re-financing options and contacting lenders to see
who will offer the most favorable rates can be quite taxing. A homeowner should
consider the time and effort required for this endeavor in deciding whether or
not to re-finance. Simply stated, refinancing is a hassle and homeowners may
better spend their time with family and friends rather than running around
trying to find the best rates in town.

Does It Pay to Re-Finance?

This is a question many homeowners may have when they are considering
re-financing their home. Unfortunately the answer to this question is a rather
complex one and the answer is not always the same. There are some standard
situations where a homeowner might investigate the possibility of re-financing.
These situations include when interest rates drop, when the homeowner's credit
score improves and when the homeowner has a significant change in their
financial situation. While a re-finance may not necessarily be warranted in all
of these situations, it is certainly worth at least investigating.

Drops in the Interest Rate

Drops in interest rates often send homeowners scrambling to re-finance. However
the homeowner should carefully consider the rate drop before making the decision
to re-finance. It is important to note that a homeowner pays closing costs each
time they re-finance. These closings costs may include application fees,
origination fees, appraisal fees and a variety of other costs and may add up
quite quickly. Due to this fee, each homeowner should carefully evaluate their
financial situation to determine whether or not the re-financing will be
worthwhile. In general the closing fees should not exceed the overall savings
and the amount of time the homeowner is required to retain the property to
recoup these costs should not be longer than the homeowner plans to retain the

Credit Score Improvements

When the homeowner's credit scores improve, considering re-financing is
warranted. Lenders are in the business of making money and are more likely to
offer favorable rates to those with good credit than they are to offer these
rates to those with poor credit. As a result those with poor credit are likely
to be offered terms such as high interest rates or adjustable rate mortgages.
Homeowners who are dealing with these circumstances may investigate
re-financing as their credit improves. The good thing about credit scores is
mistakes and blemishes are eventually erased from the record. As a result,
homeowners who make an honest effort to repair their credit by making payments
in a timely fashion may find themselves in a position of improved credit in the

When credit scores are higher, lenders are willing to offer lower interest
rates. For this reason homeowners should consider the option or re-financing
when their credit score begins to show marked improvement. During this process
the homeowner can determine whether or not re-financing under these conditions
is worthwhile.

Changed Financial Situations

Homeowners should also consider re-financing when there is a considerable
change in their financial situation. This may include a large raise as well as
the loss of a job or a change in careers resulting in a considerable loss of
pay. In either case, re-financing may be a viable solution. Homeowners who are
making considerably more money might consider re-financing to pay off their
debts earlier. Conversely, those who find themselves unable to fulfill their
monthly financial obligations might turn to re-financing as a way of extending
the debt which will lower the monthly payments. This may result in the
homeowner paying more money in the long run because they are stretching their
debt over a longer pay period but it might be necessary in times of need. In
these cases a lower monthly payment may be worth paying more in the long run.

When Is It a Mistake to Re-Finance?

Many homeowners make the mistake of thinking re-financing is always a viable
option. However, this is not true and homeowners can actually make a
significant financial mistake by re-financing at an inopportune time. There a
couple of classic example of when re-financing is a mistake. This occurs when
the homeowner does not stay in the property long enough to recoup the cost of
re-financing and when the homeowner has had a credit score which has dropped
since the original mortgage loan. Other examples are when the interest rate has
not dropped enough to offset the closing costs associated with re-financing.

Recouping the Closing Costs

In determining whether or not re-financing is worthwhile the homeowner should
determine how long they would have to retain the property to recoup the closing
costs. This is significant especially in the case where the homeowner intends to
sell the property in the near future. There are re-financing calculators readily
available which will provide homeowners with the amount of time they will have
to retain the property to make re-financing worthwhile. These calculators
require the user to enter input such as the balance of the existing mortgage,
the existing interest rate and the new interest rate and the calculator return
results comparing the monthly payments on the old mortgage and the new mortgage
and also supplies information about the amount of time required for the
homeowner to recoup the closing costs.

When Credit Scores Drop

Most homeowners believe a drop in interest rates should immediately signal that
it is time to re-finance the home. However, when these interest rates are
combined with a drop in the credit score for the homeowner, the resulting
re-financed mortgage may not be favorable to the homeowner. Therefore
homeowners should carefully consider their credit score at the present time in
comparison to the credit score at the time of the original mortgage. Depending
on the amount interest rates have dropped, the homeowner may still benefit from
re-financing even with a lower credit score but it is not likely. Homeowners may
take advantage of free re-financing quotes to get an approximate understanding
of whether or not they will benefit from re-financing.

Have the Interest Rates Dropped Enough?

Another common mistake homeowners often make in regard to re-financing is
re-financing whenever there is a significant drop in interest rates. This can
be a mistake because the homeowner must first carefully evaluate whether or not
the interest rate has dropped enough to result in an overall cost savings for
the homeowners. Homeowners often make this mistake because they neglect to
consider the closing costs associated with re-financing the home. These costs
may include application fees, origination fees, appraisal fees and a variety of
other closing costs. These costs can add up quite quickly and may eat into the
savings generated by the lower interest rate. In some cases the closing costs
may even exceed the savings resulting from lower interest rates.

Re-Financing Can Be Beneficial Even When It is a "Mistake"

In reality re-financing is not always the ideal solution, but some homeowners
may still opt for re-financing even when it is technically a mistake to do so.
This classic example of this type of situation is when a homeowner re-finances
to gain the benefit of lower interest rates even though the homeowner winds up
paying more in the long run for this re-financing option. This may occur when
either the interest rates drop slightly but not enough to result in an overall
savings or when a homeowner consolidates a considerable amount of short term
debt into a long term mortgage re-finance. Although most financial advisors may
warn against this type of financial approach to re-financing, homeowners
sometimes go against conventional wisdom to make a change which may increase
their monthly cash flow by reducing their mortgage payments. In this situation
the homeowner is making the best possible decision for his personal needs.

What is a Cash Out Re-Finance?

A cash out re-finance basically enables the homeowner to re-finance their home
for an amount greater than the balance of the exiting mortgage. The homeowners
than repay the existing balance plus the additional amount over the course of
the loan period and are given a check for the amount above and beyond the
balance of the exiting mortgage. The homeowners can use this check for any
purpose they choose now and repay the debt along with the rest of re-financed

When is a Cash Out Re-Finance possible?

A cash out option is available when there is existing equity in the home. This
is important because the lender is able to justify the practice of offering
increased funds to the homeowner due to the value of the property. This is
because the lender feels as though the security of having the home for
collateral does not put them at a high risk for the homeowner defaulting on the

Homeowners who wish to take advantage of a cash out re-finance offered by a
lender should inquire as to whether or not the lender offers this type of
re-financing. This is important because not all lenders offer this option. It
should actually be one of the first questions the homeowner asks when inquiring
about re-financing programs. Doing so will save homeowners, who are seeking a
cash out re-finance, a great deal of time.

How Can the Cash be Used?

For many homeowners the most appealing aspect of cash out re-financing is that
the additional funds can be used for any purpose desired by the homeowner. The
homeowner does not even have to offer the lender an explanation of how the
additional funds will be used. This is important because once the lender writes
the check for the additional funds, he has no concern for how the money is used.
This is because the amount of the additional funds is rolled into the
re-financed mortgage. The lender simply focuses on the homeowner's ability to
repay the mortgage and is not concerned with how the homeowner uses the funds
which are released in the cash out.

While the purpose of a cash out re-finance does not have to be disclosed to the
lender, the homeowner would be wise to use these funds in a judicious manner.
This is because the homeowner will be responsible for repaying these funds to
the lender. Some of the popular uses for funds collected from cash out
re-financing include:

* Undertaking home improvement projects 
* Purchasing items for the home 
* Taking a dream vacation 
* Putting money in a child's tuition fund or 
* Purchasing a vehicle 
* Starting a small business

All of the reasons listed above are excellent uses of a cash out re-finance
option. Homeowners who are considering this type of a re-financing option
should also consider whether or not the deductions are tax deductible. Using
the cash out option to make home improvements is jus one example of a situation
where the funds can be tax deductible. Homeowners should consult their tax
attorney on the matter to determine whether or not they are able to deduct the
interest from the repayment of their re-financing loan.

Cash Out Re-Financing Example

The process of a cash out refinancing option is fairly easy to illustrate with
a simple example. Consider a homeowner who purchases a $150,000 with a 7%
interest. Now consider the homeowner has already repaid $50000 of the loan and
would like to borrow an additional $20,000 to make a rather large purchase or
invest in a small business. With this additional funding available the
homeowners have the opportunity to use the equity in their home to make their
dreams come true. In the example above the homeowner may refinance for a total
of $120,000 at a lower interest rate such as 6.25%. This process allow the
homeowner to take advantage of the existing equity in their home and also
allows the homeowner to qualify for a substantial loan at a rate typically
reserved for re-financing or home loans.

Tax Considerations When Re-Financing

For many homeowners the overall goals of re-financing are often paying less in
interest overall and reducing monthly payments. When a homeowner is able to
obtain a lower interest rate, there is usually the opportunity to re-finance
the mortgage to capitalize on the lower interest rate. However, a lower
interest rate does not automatically translate to a savings. The homeowner must
carefully consider the amount of money they will be savings over the course of
the loan in relation to the amount of money they will be spending to re-finance
the mortgage. When the closing costs associated with re-financing are larger
than the savings, re-financing may not be warranted. Re-financing can also have
financial ramifications associated with tax options.

Paying Less Interest Equals Less of a Deduction

In most locations, homeowners are permitted to deduct the amount of taxes they
pay on their mortgage when filing their tax forms. This is usually quite a
substantial deduction for homeowners who owned the home for the entire tax
year. Those who re-finance their mortgage will typically be paying less money
each year in taxes on the mortgage. While this is great in the long run, it can
adversely affect the homeowner's tax return.

Consider a situation where a homeowner is located just below a major tax
bracket which would be quite costly for the homeowner. As all ready discussed,
re-financing may result in the homeowner paying less money in taxes each year.
This means the taxpayer will be able to make a smaller deduction this year now
fall above the tax bracket they previously fell below. When this happens the
homeowner may find themselves paying significantly more in taxes.

Consult a Tax Preparation Specialist

Determining the exact ramifications of paying less interest on a home mortgage
on a tax return can be a rather tricky process. There are a number of difficult
equations involved which can make the apt to make mistakes while trying to
determine the consequences of paying less in taxes on the mortgage. For this
reason, the homeowner should consult a tax preparation specialist when
determining whether or not re-financing is worthwhile because the tax
specialist can provide information regarding the impact of paying less in

In selecting a tax preparation specialist, the homeowner should seek out
opinions from friends and family members if the homeowner does not employ a
specialist to prepare their own taxes. This can be helpful because trusted
friends and family members are only likely to recommend professionals they feel
were knowledgeable, trustworthy and caring. A tax preparation specialists should
have all of these qualities but should also be well versed in the area of tax
preparation. This will enable the tax preparation specialist to make all of the
right decisions when considering the needs of the homeowner.

Online Calculators

For homeowners who do not know a tax preparation specialist or for homeowners
who are unable to afford the consulting services of these individuals, there
are online calculators which homeowners might find very useful. These
calculators are readily available throughout the Internet and can be used to
determine the tax ramifications to re-financing. These calculators ask the user
to input specific criteria then returns results regarding the amount the
homeowner will pay in taxes during the year if he refinances. Additionally the
homeowner can run these equations several times to consider a number of
different scenarios.

Seek Recommendations When Re-Financing

Homeowners who are re-financing their home for the first time may need a great
deal of advice to assist them during the process. While homeowner can certainly
research the process of re-financing by themselves, this can be a cumbersome
task which is difficult, if not impossible. While it might be possible for a
homeowner to educate himself enough to make informed decisions, it is
unreasonable to expect a homeowner to be up to date on the most current
information in the re-financing industry. It would also not be reasonable for
homeowners to learn enough to make a definite decision regarding re-financing.
The homeowner may still require some direction regarding which options are best
suited for the needs of the homeowner.

Fortunately there are two simple steps homeowners can take to tips the odds of
obtaining the most favorable re-financing in their favor. These simple steps
include consulting with friends and family members who have recently financed
and turning to industry experts for assistance.

Consult Friends and Family when Re-Financing

Believe it or not consulting with family and friends is one of the first steps
a homeowner should take in the refinancing process. Those reading this article
might be somewhat confused by this suggestion because in the previous section
we stressed how it would be virtually impossible for a homeowner to thoroughly
educate themselves on the re-financing process. Surely, we are not implying
every homeowner has a friend or family member who is capable of given detailed
financial advice in regard to re-financing. However, friends and family members
can be helpful in a different capacity.

Friends and family members who recently re-financed their own home likely did a
great deal of research and legwork before making their decision. They also
likely formed useful opinions, either negative or positive, about the lender
they used in the process. It is this information which can be very useful to
homeowners who are considering their own re-financing. Homeowners can obtain
information such as which lenders are currently offering the best rates as well
as which lenders are easy to work with and responsive to the needs of the
homeowners as well as which lenders do not take a vested interest in helping
the homeowner to succeed.

Ask Experts for Advice when Re-Financing

One piece of advice which cannot be overlooked when re-financing a home, is
asking an expert in the re-financing industry for advice. These experts may
have costly consulting fees associated with their assistance but most
homeowners would agree these fees are certainly worthwhile especially if the
result in a significant cost savings for the homeowner.

We previously stressed how the issues associated with re-financing can be quite
complex and difficult for those outside of the industry to fully understand,
however, those in the industry spend their days devoted to learning more about
re-financing, keeping up to date with changes in the industry as well as new
developments and figuring out how to best serve the customers. All of these
characteristics make it clear that homeowners should really consider employing
the services of a financial planner with a great deal of experience in
re-financing when they are making decisions regarding the best re-financing
option for their situation.

Again, friends and family members who previously consulted with an industry
professional can supply candid opinions about those they met. This can save the
homeowner a great deal of time by eliminating potential candidates who friends
and family members thought performed poorly.

Re-Financing with Shorter Loan Terms

For some homeowners there is the possibility of making a sound re-financing
decision even when interest rates are stagnant, the homeowner does not have a
great amount of equity in the home and the homeowner's credit score has not
increased significantly. You might wonder how this is possible. It certainly
isn't an option for every homeowner but those who can afford to pay
significantly more each month can yield huge financial benefits by refinancing
their loan terms from 30 years to 15 years. The benefits which may result from
this type of re-financing include a significant overall savings, the ability to
gain equity quicker and the ability to repay the balance of the loan quicker.

Higher Monthly Payments Increase Overall Savings

Re-financing with shorter loan terms is definitely not an easy option but
homeowners who have a large monthly cash flow or who receive a sizable
promotion at work might be able to consider the possibility of re-financing by
decreasing the loan terms from 30 years to 15 years.

The result of this type of re-financing will be a significantly higher monthly
payment which is not conventional but can be worthwhile if it meets the needs
of the homeowner. In particular this type of re-financing option is a viable
solution if the homeowner can afford the increase in monthly payments and has
an overall goal of reducing the amount of interest they will pay over the
course of the entire loan.

Reducing the amount of interest is critical to the overall savings plan because
the homeowner does not have the option of reducing their original debt but they
can drastically reduce the amount of interest paid over the course of the loan.
Consider two loans with a 5% interest rate. One loan is to be repaid over a
period of 15 years while the other loan is to be repaid over a period of 30
years. It is clear that in this example, the homeowner with the 30 year
mortgage will pay more during the course of the loan.

Equity Gained Quicker

Another major advantage to re-financing by reducing the loan terms from 30
years to 15 years is the ability to gain equity in the home at a significantly
faster rate. The amount of the equity in the home is equal to the amount of the
principal loan which has already been repaid by the homeowner. Under a
conventional loan, the homeowner typically pays a combination of principal and
interest with their monthly payments. The amount of the principal which is
repaid on two mortgages for the same amount and with the same interest rate
will be different if one loan is a 30 year term and the other is a 15 year
term. The homeowner with the 15 year mortgage will be paying more of the
principal each month and will therefore be accumulating more equity each month.
Gaining equity in the home quicker is ideal because it gives the homeowner
greater flexibility. The equity in the home can be used for a number of
purposes including home improvement projects, travel, educational pursuits and
small business ventures.

Loan Repaid Quicker

One advantage of shortening the loan terms, which cannot be denied by some
homeowners, is the ability to repay the loan quicker by re-financing to shorten
the loan terms from 30 years to 15 years. In this case the homeowner will have
completely repaid the home loan a full 15 years earlier than they would have
under the conventional loan. This is advantageous because it can enable the
homeowners to enjoy living mortgage free a full 15 years earlier. Once the
mortgage is fully repaid, the homeowner may be able to make significantly more
sizable contributions to his retirement plan. Some homeowners may even be able
to afford to retire once their mortgage is repaid in full. This ability can
have a significant impact on the quality of life for the homeowner. Homeowners
may find themselves with the financial means to travel, assist family in
educational pursuits or invest in a small business.

Re-Financing with an Interest Only Mortgage

Interest only mortgages are a relatively new phenomenon in the re-financing
industry as well as the home buying industry. While the appeal of an interest
only mortgage is typically a greater monthly cash flow, this increased cash
flow can come with a hefty price tag. In exchange for more cash flow each
month, the homeowner may be sacrificing the ability to obtain a fixed rate
mortgage as well as the ability to build equity. This article will further
examine these features to provide the reader with more information on the
subject of interest only mortgages.

Greater Monthly Cash Flow

The one main advantage for many homeowners in an interest only mortgage is the
ability to increase monthly cash flow. Homeowners who re-finance by utilizing
an interest only mortgage will likely have more money available each month
because they will only be paying interest on their mortgage initially. The
reduction of the principal payment can make it easier for the homeowner to
either afford a larger house or have the ability to live more extravagantly on
their budget. However, there is often a significant price to pay for these
types of re-financing options.

While interest only loans may not be ideal, they can be beneficial in the
situation where the homeowner is having a great deal fulfilling his monthly
obligations. In this case, the homeowner may be willing to sacrifice an overall
financial loss for the ability to continue to pay monthly bills in a timely

Unknown Risks of an ARM

Interest only re-finance loans are typically offered with an adjustable rate
mortgage (ARM) this means the interest rate is not fixed and may fluctuate with
the rise and fall of the prime index. This risk can be quite costly for the
homeowner if the interest rate rises significantly. There is usually a cap
placed on the amount, in terms of percentage, the interest rate can rise in a
certain period but this can still be a very costly mistake for the homeowners.

An ARM re-finance option with an interest only component may be worthwhile in
some situations. For example if the homeowner has a hybrid mortgage which
features a fixed interest rate during the interest only portion and an ARM
during the principal and interest portion of the loan they might benefit from
this situation if they do not plan to stay in the home for longer than the
interest only period. This period may vary depending on the lender and the
circumstances. Homeowners who plan to sell the house before the interest only
period ends and the ARM period begins enjoy the benefits of lower monthly
payments and the security of fixed interest rates before they ever have to
worry about repaying the principal or dealing with the varying interest rates.

No Equity in the Home

Another disadvantage to the interest only re-finance loans is they do not allow
the homeowner to build equity in the home during the initial period where only
the interest on the loan is repaid. This can be a problem for homeowners who
are looking to profit through the sale of their home. These homeowners may find
the participation in an interest only re-finance has had a damaging effect on
the profit they are able to generate from the resale of their home.

Re-Financing with an ARM

An adjustable rate mortgage (ARM) is one of the most popular options available
for both home mortgages and re-financing. Many homeowners do not fully
understand the concept of an ARM and as a result may be somewhat hesitant to
pursue this type of a mortgage. This is a shame because there are some
situations in which an ARM or a hybrid mortgage can be the best mortgage
solution for a homeowner who is in the process of re-financing. This article
will focus on explaining the concept of an ARM, explaining situations where it
is the best solution, debunking the most popular misconception regarding ARMs
and explaining how those with bad credit can benefit from an ARM. At the
conclusion of this article the reader should have a better understanding of
ARMs and should be inspired to investigate this re-financing option further.

What is an ARM?

An ARM is an acronym for an adjustable rate mortgage. This means the interest
rate associated with the mortgage is not fixed. Instead it is tied to an index
such as the prime index and may rise and drop as the associated index rises and
drops. The fact that interest rate is variable scares away many homeowners from
considering this option further. However, there are certain safety measures in
place which protect the homeowner from rapid increases. This safety measure
will be discussed in greater detail later in the article on the section on the
biggest myth regarding an ARM. However, for now homeowners should simply be
aware that they would not be subjected to incredibly high interest jumps during
a short period of time.

The Biggest ARM Myth

The variability of the interest rate in an ARM makes many homeowners feel very
apprehensive. These homeowners envision interest rates going through the room
during their loan term and resulting in their monthly payments skyrocketing.
However, fortunately for these homeowners, rapidly increasing interest rates
may not have a significant effect on ARMs.

This is because most ARMs have a built in clause which prevents the interest
rate from rising more than a certain amount during a specific time period.
During this time the national interest rate may rise significantly more but
there is a cap on the amount the homeowner's interest rate will be raised.

When is an ARM Desirable?

One of the most desirable situations for an ARM is as a part of a hybrid
mortgage. Hybrid mortgages typically have one component which is fixed and one
component which is adjustable. These types of mortgages may have a fixed rate
for a set number of years begin to vary after this initial period. Alternately
a hybrid loan may be variable for a number of years and then become fixed after
this initial period.

The loan which begins with a fixed rate is usually desirable because the
introductory rate is typically lower than the rate offered on traditional fixed
loans for homeowners with comparable credit ratings. Homeowners may particularly
like this option if they are repaying a smaller second mortgage and may be able
to repay the loan in full before the introductory period ends.

ARMs for Those with Bad Credit

ARMs can also be very helpful for assisting those with bad credit in purchasing
a home for the first time. There are a variety of loan options available today
which makes it possible for even homeowners with poor credit to obtain a home
loan. However, those with bad credit are usually offered these loans with
unfavorable terms such as higher interest rates. Additionally, lenders may only
be able to offer those with poor credit an ARM. Lenders take a significantly
greater risk when they lend money to a homeowner with bad credit. As a result
the lenders usually compensate for this increased risk by shackling the
homeowner with less favorable such as a mortgage with an adjustable rate as
opposed to a fixed rate.

Re-Financing with a Line of Credit Loan

Some homeowners might consider re-financing with a home equity line of credit
as opposed to a traditional loan. There are definite advantages and
disadvantages to these types of situations. The key to understanding whether or
not re-financing with a home equity line of credit is worthwhile involves
understanding what a home equity line of credit is, how it differs from a home
loan and how it can be used. This article will briefly cover each of these
topics to give the homeowner some useful information which may help them decide
whether or not a home equity line of credit is ideal in their re-financing

What is a Home Equity Line of Credit?

A home equity line of credit, sometimes called a HELOC, is essentially a loan
in which funds are made available to the homeowner based on the existing equity
in the home. However, in this case, it is not really a loan but rather a line of
credit. This means a certain amount of money is made available to the homeowner
and the homeowner may draw on this line of credit as funds are needed. There is
a specified period in which the homeowner is able to make these withdrawals.
This is known as the draw period. Additionally there is a repayment period in
which the homeowner must repay all of the funds they withdrew from the account
during the draw period.

How Does a Home Equity Line of Credit Differ from a Home Equity Loan?

The difference between a home equity line of credit and a home equity loan is
really quite simple. While both loans are secured based on the existing equity
in the home, the manner in which the funds are disbursed to the homeowner is
rather quite different. In a home equity loan the homeowner is given all of the
funds immediately. However in a home equity line of credit the funds are made
available to the homeowner but are not immediately disbursed. The homeowner is
able to draw against this line of credit as he sees fit. There are limits to
the amount which can be withdrawn and there is also a limit on when funds can
be withdrawn. A home equity has a draw period and a repayment period. Funds can
be withdrawn during the draw period but must be repaid during the repayment

How Can a Home Equity Line of Credit Be Used?

One of the biggest advantages of a home equity line of credit is that the funds
can be used for any purpose specified by the homeowner. While other loans such
as an auto loan or even a traditional mortgage might have strict restrictions
on how the money lent to the homeowner can be used, there are no such
restrictions on a home equity line of credit. Common uses of a home equity line
of credit include the following:

* Home renovations or improvement projects 
* Opening a small business 
* Taking a dream vacation 
* Pursuing higher educational goals 
* Opening a small business

In some cases the interest paid on a home equity line of credit may be
considered tax deductible. This may apply in situations where the funds are
used to make repairs or improvements to the home. However, these expenses are
not always tax deductible and the homeowner should consult with a tax
professional before making decisions regarding which interest payments can be

Is Re-Financing Worth the Hassle?

Some homeowners may never re-finance while others may re-finance frequently.
This is a decision which is largely a matter of personal preference. Sure there
are some financial benefits which may result from re-financing but for some
homeowners these benefits are not worth the hassle of going through a mortgage
re-finance. For these homeowners the amount of savings overall or the
opportunity to lower monthly payments is simply not worth the effort of
investigating the re-financing options, comparison shopping for lenders and
paying closing costs to obtain a re-finance.

Are Some Homeowners Just Lazy?

Yes, let's face it we have all visited a friend's house to find dust bunnies
under the couch or unfolded laundry lying on the floor. However, laziness is
usually not the culprit when a homeowner opts not to refinance despite the
opportunity for an overall savings or lower monthly payments. In these cases
the homeowner may simply decide not to re-finance because they are not
confident in making the right decision. These homeowners essentially decide
they are happy with their current financial situation and are not willing to
make changes which may or may not improve this condition. It is likely that
these same homeowners would re-finance their home if all the work was done for
them and they were guaranteed an improved financial situation.

Do Some Homeowners Just Not Understand the Financial Benefits?

This may be true as well. Homeowners who do not fully comprehend the potential
savings which may be involved in re-financing are not likely to undergo the
re-financing process. For these homeowners it may seem as though the efforts
are not worthwhile for the benefits that are received. If the homeowner had a
clearer understanding of the situation they might have a different opinion but
in this case the homeowners may be unable to comprehend the ramifications of a

Consider the factors involved in re-financing. Most of the equations use to
justify the benefits of re-financing are rather complex. There are calculators
available online which make it extremely simple for homeowners to enter the
known information and obtain the desired results. However, these calculators
typically do not explain how the calculations are performed. This can make it
hard for some homeowners to simply accept the results produced by these
calculators. When this is the case the homeowner is not likely to be inclined
to automatically accept the results generated by these calculators.
Additionally, the homeowner may not consider re-financing until they are able
to confirm these calculations. Depending on the homeowner's mathematical
skills, this could be either a short process or a long process.

Can You Convince a Homeowner to Re-Finance?

This is a hard question to answer because it depends on a number of factors.
Some homeowners may be extremely trusting and may be convinced to re-finance
with little effort at all. Conversely some homeowners may be quite guarded in
terms of their financial situation. These homeowners may be suspicious of
claims that the re-financing can improve their financial situation. These
suspicions can make it extremely difficult for a homeowner to be convinced to
make a change. Once suspicions begin to develop the homeowner may either seek
out more information on the subject or become less receptive to additional
information. While one case may lead to the homeowner being more likely to be
convinced to re-finance the other case will likely make him less willing to

Finding Re-Financing Information

Homeowners who are considering re-financing but are not knowledgeable about the
subject have a number of options available to them for finding more accurate
information regarding the types of re-financing options available as well as
the ways to obtain the best available rates and tips for finding a reputable
lender. This information can be obtained through a number of resources
including published books, Internet websites and conversations with experts in
the financial industry who specialize in the area of re-financing. All of these
sources can be very helpful but there are also precautions homeowners must take
when using each information source. Taking these precautions will help to
ensure the homeowner is receiving accurate information.

Using Books for Research

Published books are often considered to be one of the most reliable resources
for researching re-financing options. However, not all books on the subject are
created useful. Readers may find some books provide a great deal of useful,
current information while others books are filled with outdated information and
information which is not 100% accurate.

The best way to select a book or books when researching the subject of
re-financing is to start the search with books that were only recently
published. This is important because the financial industry is continually
evolving and as a result books which were published only a few years ago may
already be considered out of date.

Homeowners should also seek out independent reviews when considering books on
the subject of re-financing. This is important because books which consistently
receive solid reviews from consumers are likely to be worthwhile. Conversely
books which consistently receive negative reviews are likely to not be
worthwhile. Homeowners should seek out highly recommended books while avoiding
those that are not highly recommended. This may prevent the homeowner from
wasting time reading books which are not informative and may even be inaccurate.

Using the Internet for Research

The Internet is another resource which can be very valuable for homeowners who
are considering re-financing their home. The Internet is filled with valuable
information but there is also a great deal of misinformation floating around on
the Internet. Homeowners who are completely uninformed about the re-financing
process may not be able to distinguish between the useful information and the
misinformation. As a result these homeowners may be led astray by inaccurate
information on the Internet. Homeowners who wish to avoid the potential for
this problem should consider verifying the information they find online through
an outside source such as a published book from a renowned author or by
conferring with an expert in the subject of re-financing.

Homeowners should also do the majority of their research on well established
websites. This includes websites owned and operated by major lenders which have
been in business for years. The information on these websites is likely to be
much more up to date and accurate than websites which are created for profit by
website owners.

Consulting with Re-Financing Experts

Finally, consulting with financial experts who specializes in re-financing can
be very helpful for homeowners who are considering re-financing. This might be
the most expensive option as many of these experts will likely charge a fee for
their services but it can also be the most reliable source of information.

There are a number of advantages to consulting with an industry professional as
opposed to researching the subject independently through published resources.
The most significant advantage is the ability to ask questions throughout the
re-financing process. This will help to ensure the homeowner fully understands
the available options. It will also help to ensure the homeowner receives the
best possible re-financing option for his specific needs. The re-financing
process works best when the homeowner offers their input about the type of
re-financing they are seeking as well as the benefits they hope to obtain
through re-financing. The re-financing expert can than make a better
recommendation which will suit the homeowner's needs.

Comparison Shopping When Re-Financing

Homeowners who are re-financing their home for the first or even the second or
third time should thoroughly research all of the available options to ensure
the best possible interest rate and terms are secured. Homeowners are sometimes
lazy when it comes to re-financing. There may a large drop in interest rates or
a change in the financial situation which warrants a re-finance. Although the
homeowner may be aware that a re-finance is warranted, the homeowner may not be
aware that it sometimes takes a great deal of work to find the best possible
rates and terms.

Homeowners are often inclined to re-finance with the same lender who granted
the original mortgage or with the same lender who handled prior re-finances.
The theory behind this reasoning is along the same lines as, "If it ain't
broke, don't fix it." These homeowners figure their current mortgage is
adequate and they are happy with the current lender so there is no need to
investigate further options. However, this cavalier attitude can be quite
costly for the homeowners.

Try All the Options

Homeowners who are considering re-financing their home should contact a number
of lenders and obtain rate quotes from each of them. When soliciting quotes the
homeowners should consider all of their available options but should limit these
options to established lender. While a newer lender may be offering fantastic
rates and loan terms it is considered quite risky to go with this type of
lender as opposed to a more established lender.

Homeowners who wish to further investigate smaller lenders who do not have an
established history should proceed with caution. Unless the lender has trusted
friends or family members who are willing to vouch for the lender, the
homeowner should investigate these smaller lenders carefully. Visiting a
website address is not the best way to ensure credibility. Designing a
professional looking website is a fairly simple process. Most website designers
could design and upload such a website in less than a day.

Friendly Competition

When comparison shopping for the most favorable rates, homeowners should make
it well known that they are shopping around for rate quotes and are not making
a decision immediately. Lenders who know they have some competition may be more
likely to offer a lower interest rate than they would if they did not think the
homeowner was considering other options. Although this may not seem quite fair
to the lender, the business of re-financing is a competitive business. Just
like a plumber might offer his most competitive rate if he knows the homeowner
is seeking estimates from a number of different plumbers, lenders are apt to do
the same. They make their money from homeowners and having a homeowner
re-finance their mortgage does not help them out at all financially.

Some lenders may think the homeowner is bluffing and may not offer the best
rate initially. However, if the homeowner rejects the offer and states they
have a better offer with another lender, the first lender may be enticed to
offer an even lower interest rate just to see if they can sway the homeowners.
While cost is certainly important, it is not the only factor to consider. Some
homeowners might re-finance with a lender who offers slightly higher rates if
the homeowner feels as though this lender is more responsive to his needs.

Choosing a Lender

Choosing a lender is a very important part of the process of re-financing a
home. Understanding the different re-financing options and knowing how each of
these options work is very important but none of this matters at all if the
homeowner is unable to find a lender who is willing to offer them the rates and
terms they are seeking. Choosing a lender can be a long and difficult process
but there are some ways to make it easier. One simple way to make it easier is
to ask for advice from friends or family members who recently re-financed.
Additionally, homeowners can do their own research to determine which lenders
are able to offer them the best rate. Finally the homeowner should determine
whether or not the finances should be the governing factor in choosing a
lender. Surprisingly enough, in most cases it is not.

Ask for Advice from Friends and Family Members

Friends and family members who recently refinanced can be a homeowner's most
valuable resource in the process of selecting a lender. These friends and
family members are so valuable because they will most likely be willing to
offer you a quite candid opinion of the lender they used. This opinion may be
either positive or negative but in either case it is useful to the homeowner.
If the opinion is negative the homeowner can remove this lender from their list
of lenders to consider. Conversely if the lender comes highly recommended, the
homeowner may consider this lender more carefully.

Comparison Shop

Homeowners who want to know which lender is offering them the best interest
rate and financial terms should do a great deal of comparison shopping. The
homeowner may even consider requesting quotes from each and every lender. This
should make it perfectly clear which lenders are willing to offer the homeowner
more favorable rates. When comparing these quotes all of the factors should be
considered to ensure the quotes are being compared fairly. For example each
quote should be broken down to determine the monthly savings, total savings,
etc. All of this statistical data will make it much easier for the homeowner to
make a wise decision when the time comes.

Consider More than Finances

Finally, while interest rates, loan terms and other financial matters are all
certainly important none of these are more important than being treated fairly
by the lender. For this reason, the homeowner should carefully consider all of
their lenders and should determine whether or not they feel as though the
lender is responsive to his needs. For example, a lender who does not return
calls in a timely fashion or answer questions truthfully and accurately may not
be the ideal lender for a homeowner even if he is the lender who is offering the
most favorable rates.

Additionally, homeowners should trust their instincts regarding their trust in
the lender. Some lenders simply do not appear to know what they are talking
about. Homeowners might be inclined to avoid these individuals because they may
end up doing more harm than good during the re-financing process. Conversely
some homeowners may be immediately impressed by the honesty and intelligence of
another lender. In most cases, the homeowner would likely choose the second
lender as long as the rates offered by each lender were comparable.

Choosing a Fixed or ARM Option

One of the most important decisions a homeowner will have to make when deciding
to re-finance their home is whether they want to refinance with a fixed
mortgage, an adjustable rate mortgage (ARM) or a hybrid loan which combines the
two options. The names are pretty much self explanatory but basically a fixed
rate mortgage is a mortgage where the interest rate remains constant and an ARM
is a mortgage where the interest rate varies. The amount the interest rate
varies is usually tied to an index such as the prime index. Additionally there
are usually clauses which prevent the interest rate from rising or dropping
dramatically during a specific period of time. This safety clause provides
protection for both the homeowner and the lender.

Advantages of a Fixed Option

A fixed re-financing option is ideal for homeowners with good credit who are
able to lock in a favorable interest rate. For these homeowners the interest
rate they are able to retain makes it worthwhile for the homeowner to
re-finance at the new interest rate. The major advantage to this type of
re-financing options is stability. Homeowners who re-finance with a fixed
mortgage rate do not have to be concerned about how their payments may vary
during the course of the loan period.

Disadvantages of a Fixed Option

Although the ability to lock in a favorable interest rate is an advantage it
can also be considered a disadvantage. This is because homeowners who
re-finance to obtain a favorable interest rate will not be able to take
advantage of subsequent interest rate drops unless they re-finance again in the
future. This will result in the homeowner incurring additional closing costs
when they re-finance again.

Advantages of an ARM Option

An ARM re-finance option is favorable in situations where the interest rate is
expected to drop in the near future. Homeowners who are skilled at predicting
trends in the economy and interest rates may consider re-financing with an ARM
if they expect the rates to drop during the course of the loan period. However,
interest rates are tied to a number of different factors and may rise
unexpectedly at any time despite the predictions by industry experts.

A homeowner who can predict the future would be able to determine whether or
not an ARM is the best re-financing option. However, since this is not possible
homeowners have to either rely on their instincts and hope for the best or
select a less risky option such as a fixed interest rate.

Disadvantages of an ARM Option

The most obvious disadvantage to an ARM re-financing option is that the
interest rate may rise significantly and unexpectedly. In these situations the
homeowner may suddenly find themselves paying significantly more each month to
compensate for the higher interest rates. While this is a disadvantage, there
are some elements of protection for both the homeowner and the lender. This
often comes in the form of a clause in the terms of the contract which prevents
the interest rate from being raised or lowered by a certain percentage over a
specific period of time.

Consider a Hybrid Re-Financing Option

Homeowners who are undecided and find certain aspects of fixed rate mortgages
as well as certain aspects of ARMs to be appealing might consider a hybrid
re-financing option. A hybrid loans is one which combines both fixed interest
rates and adjustable interest rates. This is often done by offering a fixed
interest rate for an introductory period and then converting the mortgage to an
ARM. In this option, lenders typically offer introductory interest rates which
are extremely enticing to encourage homeowners to choose this option. A hybrid
loan may also work in the opposite way by offering an ARM for a certain amount
of time and then converting the mortgage to a fixed rate mortgage. This version
can be quite risky as the homeowner may find the interest rates at the
conclusion of the introductory period are not favorable to the homeowner.

Checking Mortgage Rates Online

Homeowners who are planning to re-finance their home may find the Internet to
be a very worthwhile resource. The Internet is useful because it can give the
homeowner a wealth of information as well as the ability to compare different
rates from different lenders at their convenience. While these options have
made re-financing a more convenient process there is more potential for danger.
However, homeowners who exercise a small amount of common sense in using the
Internet for re-financing often find they are not at any additional risk.

Comparison Shop at Your Convenience

One of the most popular advantages to researching re-financing online is the
ability to comparison shop at the homeowner's convenience. This is important
because many homeowners work long hours and often find they are not able to
meet with lenders during regular business hours because of job restraints. The
Internet, however, is open 24 hours a day and allows homeowners to research
their options, make important calculations or receive online quotes at any time
of the day through the use of automated systems.

Homeowners can also take their time comparing the quotes they receive from
these lenders online instead of feeling pressured to provide an immediate
response. While homeowners may have some additional time available to them,
these same homeowners should realize they do need to act relatively quickly to
lock in estimates they receive as interest rates are often time sensitive in
nature and cannot be guaranteed for long periods of time.

Use Only Reliable Resources

Homeowners who are using the Internet to research re-financing options and
obtain quotes should carefully consider their sources when making important
decisions regarding the subject of re-financing. Homeowners who stick with well
known lenders and established websites will not likely encounter problems but
those who select a new lender may be surprised by the results of the
re-financing attempt.

Homeowners who are unsure
about the reliability of a particular resource or lender should do additional
research on the company. One of the easiest ways to do this is to consult the
Better Business Bureau (BBB). The BBB may be able to provide the homeowner with
valuable information regarding the number of previous complaints against the
company. A company who has a large number of unresolved complaints should be
considered an unreliable company. However, homeowners should not assume
companies without a significant number of complaints are reputable unless the
company has been in existence for a number of years and is a member of the BBB.

Homeowners should also take care not to be fooled by fancy web design. A
website which looks very professional is not necessarily a website which is
accurate and informative. Many skilled website designers can create websites
which are both attractive and professional looking. These website designers can
also optimize a website for particular mortgage related keywords so users find
the page easily when searching for these terms but this does not necessarily
make the website designer knowledgeable about the subject to re-financing.

Confirm Loan Terms in Person before Committing

While shopping for re-financing options online is certainly easy and
convenient, homeowners should consider completing the application process
either in person or over the phone instead of relying on an automated system.
While the Internet is good for research purposes, homeowners can take advantage
of face to face meetings or telephone conferences to ask all of their relevant
questions. Asking all of these questions will help the homeowner to ensure he
fully understand the loan terms as well as all of his available options.

Completing the re-financing process in person or over the phone can also
prevent the homeowner from being surprised by any elements of the mortgage
re-finance. This may include additional fees which are tacked on during the
processing of the application, rates which are only available in certain
situations or other elements of the re-financing agreement which could
significantly impact the homeowner's decision making process.

Are You Considering Re-Financing?

Homeowners who are considering re-financing their home may have a wealth of
options available to them. However, these same homeowners may find themselves
feeling overwhelmed by this wealth of options. This process doesn't have to be
so difficult though. Homeowners can greatly assist themselves in the process by
taking a few simple steps. First the homeowner should determine his refinancing
goals. Next the homeowner should consult with a re-financing expert and finally
the homeowner should be aware that re-financing is not always the best solution.

Determine Your Goals for Re-Financing

The first step in any re-financing process should be for the homeowner to
determine his goals and why he is considering re-financing. There are many
different answers to this question and none of the answers are necessarily
right or wrong. The most important thing is that the homeowner is making a
decision which helps him achieve his financial goals. While there are no right
or wrong answer to why re-financing should be considered there are, however,
certain reasons for re-financing which are very common. These reasons include:

* Reducing monthly mortgage payments
* Consolidating existing debts
* Reducing the amount of interest paid over the course of the loan
* Repaying the loan quicker
* Gaining equity quicker

Although the reasons listed above are not the only reason homeowners might
consider re-financing, they are some of the most popular reasons. They are
included in this article for the purpose of getting the reader thinking. The
reader may find their mortgage re-financing strategy fits into one of the above
goals or they may have a completely different reason for wanting to re-finance.
The reason for wanting to re-finance is not as important as determining this
reason. This is because a homeowner, or even a financial advisor, will have a
difficult time determining the best re-financing option for a homeowner if he
does not know the goals of the homeowner.

Consult with a Re-Financing Expert

Once a homeowner has figured out why they want to re-finance, the homeowner
should consider meeting with a re-financing expert to determine the best
refinancing strategy. This will likely be a strategy which is financially sound
but is also still geared to meeting the needs of the homeowner.

Homeowners who feel as though they are particularly well versed in the subject
of re-financing might consider skipping the option of consulting with a
re-financing expert. However, this is not recommended because even the most
educated homeowner may not be aware of the newest re-financing options being
offered by lenders.

While not understanding all the options may not seem like a big deal, it can
have a significant impact. Homeowners may not even be aware of mistakes they
are making but they may here of friends who re-financed under similar
conditions and receive more favorable terms. Hearing these scenarios can be
quite disheartening for some homeowners especially if they could have saved
considerably more while re-financing.

Consider Not Re-Financing as a Viable Option

Homeowners who are considering re-financing may realize the importance of
evaluating a number of different re-financing options to determine which option
is best but these same homeowners may not realize they should also carefully
consider not re-financing as an option. This is often referred to as the "do
nothing" option because it refers to the conditions which will exist if the
homeowner does not make a change in their mortgage situation.

For each re-financing option considered, the homeowner should determine the
estimated monthly payment, amount of interest paid during the course of the
loan, year in which the loan will be fully repaid and the amount of time the
homeowner will have to remain in the home to recoup closing costs associated
with re-financing. Homeowners should also determine these values for the
current mortgage. This can be very helpful for comparison purposes. Homeowners
can compare these results and often the best option is quite clear from these
numeric calculations. However, if the analysis does not yield a clear cut
answer, the homeowner may have to evaluate secondary characteristics to make
the best possible decision.

Learning about Re-Financing Online

Many homeowners find the Internet to be very useful during the re-financing
process. The Internet may be useful because it provides the homeowner with a
wealth of information, because it provides the ability to submit loan
applications and receive estimates online and because makes it easy for
homeowners to consider complicated mathematical equations for a variety of
options with ease. While the Internet can be a homeowner's best friend it can
also be the homeowner's worst enemy. Homeowners who are using the Internet to
perform the majority of their re-financing research should be aware of the
potential problems associated with finding information online. Additionally,
this article will provide the reader with useful information regarding the
types of information they may find on the Internet as well as tips for
selecting reliable Internet resources.

Exploring the Internet

Whether you refer to it as the Internet or the World Wide Web, there is no
denying the way the Internet has changed our society. Just a few years ago, the
process of re-financing was largely done during banking hours by meeting
directly with financial advisors. However, this is no longer the case.

The major advantage young homeowners have over their parents or grandparents is
the ability to learn more about re-financing options quickly and even receive
quotes online in a matter of minutes. While the process of re-financing still
involves elaborate mathematical calculations, many of these calculations have
been automated so the homeowner only has to enter in the known variables to
solve for the unknowns. These calculators are readily available throughout the
Internet. Each calculator may not be designed identically so homeowner should
use a couple of calculators to determine an approximate range of answers.

Besides finding information and utilizing mortgage calculators, the Internet
can also be used to obtain quotes. Homeowners are able to fill out simple forms
with only a few pieces or relevant information and lenders are able to contact
the homeowner with information about the types of re-financing options and
interest rates they may be able to offer to the homeowner.

Selecting Reliable Resources on the Internet

The Internet is filled with useful information. However, the Internet is also
filled with incorrect information. Homeowners should be aware of this fact and
should avoid using the Internet exclusively in the research process. This will
enable the homeowner to independently verify the information they find online.

One way homeowners can avoid coming into contact with misinformation is to
select only reputable websites on the subject of home mortgages. Determining
which websites are reputable and which ones are not is not always easy. Website
design is a fairly simple process and there are many people who can create a
website which looks professional. However, the appearance of the website does
not ensure the quality of the content provided on the website. Even the most
professional looking website may contain inaccurate information. This may not
be intentional but it often occurs when the website owner is quite
knowledgeable about website design but is very knowledgeably about the subject
or re-financing.

One way to avoid the possibility of being misinformed on the Internet is to
rely solely on websites maintained by well known lenders or financial
institution. Often the ownership of the website may be difficult to decipher
but many well known financial institutions use their name as their domain name
and optimize their website for keywords related to their name. This is done to
ensure those who search for their name will be directed to their website.

Using Caution on the Internet

It is always wise to use caution when participating in Internet activities. As
previously discussed, this involves verifying the information obtained on a
particular website. This may be done by using independent resources such as
published books or consultations with financial advisors to confirm the
Internet research.

Additionally, homeowners should be cautious about divulging sensitive
information such as full name, address or social security number. This type of
information should only be given to sources which are deemed to be reputable.

Online Re-Financing

The Internet has greatly simplified the process of re-financing a loan. Years
ago homeowners had to go to a lender during regular business hours for lengthy
consultations and would have to visit several different lenders to determine
which one would offer the best rate. The Internet has not only simplified the
process but has also given homeowners the luxury of investigating re-financing
options at their convenience and also receiving multiple quotes form different
lenders by filling out one simple online form.

Researching Re-Financing Online

The Internet has not only made it easier for homeowners to re-finance but it
has also greatly simplified the process of learning more about re-financing.
Again homeowners from past generations might have to rely on industry
professionals and published books on the subject of re-financing. However,
today's homeowners can look up re-financing and find a wealth of useful
information regarding the different types of loans and re-financing options
available. Homeowners can also use the internet to access calculators which
perform the complicated equations homeowners previously had to leave up to the
trained professionals. These same calculations which may have taken a
considerable amount of time to complete and correct are now solved within a
fraction of a second.

Select a Reputable Lender

Homeowners who are doing the majority of their re-financing research and
searches online should carefully consider the lender they choose. This is
important because whether a lender is found online or offline, care should be
taken to ensure the lender is reputable. The easiest way to do this is to stick
with a well established lender who comes highly recommended by friends and
family members. This does not mean new lenders and smaller lenders are not
reputable but there is significantly less risk involved in selecting an
established lender than there is in selecting a new lender.

Homeowners who are investigating their re-financing options online may find the
website to be a very valuable resource. This website offers
articles and calculators which the homeowner can use to gain the knowledge they
need to make an informed decision. The articles on the website are written in
clear and concise language which is easy to understand and the calculators are
extremely user friendly and allow require the homeowner to enter in a few
variables to obtain the desired results.

Another great feature of this website is the inclusion of a link which provides
access to obtaining a free credit report. The process is very simple although it
does require the homeowner to verify their identity. This is done to protect
homeowners from identity theft or other acts of fraud. This is significant
because homeowners are likely to realize the terms of their mortgage re-finance
will depend largely on their credit score. Homeowners who have good credit will
likely be offered favorable rates and terms while homeowners with less than
perfect credit will not be offered favorable rates and terms.

However, the most significant feature of this website is the ability to obtain
up to four quotes from qualified lenders by filling out one simple form. The
information required is rather basic in nature and is information which most
homeowners have readily available. Once this information is submitted into the
system, the responses are received from up to four lenders almost instantly.
The information contained in these reports is customized for the homeowner
according to the information inputted into the system.

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