If you are considering refinancing, it pays to shop around and look at various lenders and the financing terms they offer. When seeking a refinancing, closely analyze your current financial situation and what you plan to gain from the refinancing. Banks can offer a variety of loan products that may be suitable to your needs. If you have a relationship with a bank or lender, you may pay less for a refinancing, especially if you’ve borrowed from them before and have made your loan payments on time.
Your Financial Profile
Carefully analyze your current debt load before you decide on refinancing. Refinancing your existing debt can benefit you if switch to a lower interest rate, consolidate several debts into one or reduce a monthly payment amount. A refinancing will create a new debt with new terms. Analyze the terms of the new loan product you are interested in so that your new debt provides a financial benefit. If you need cash back from the refinancing and wish to increase your current debt load, look at your credit score and history and evaluate if they are good enough to obtain a larger loan.
Reasons for Refinancing
Look carefully at the reasons why you wish to refinance a loan. If the reason for the refinance is to save money, make certain that the savings are larger than any prepayment penalties on the current loan. A refinancing also brings upfront and closing costs to obtain a lower interest rate. Make certain sufficient savings to you outweighs all of these refinancing costs. If you wish to lower your monthly payments by refinancing into a longer loan term, carefully consider the effects of extending a debt out into the future.
Talk with your current lender and discuss any new loan options that are available to you. If you have a favorable payment history on your current mortgage, this can work in your favor in obtaining a new mortgage with a lower cost and better terms. Your payment history can reach as high as 35 percent of your total creditworthiness, according to Trulia, a real estate website. In addition, never missing a payment can make up for other negative aspects present in your credit file such as, a high debt-to-income ratio or a shorter credit history.
Consider shopping around and talking with other lenders about the loan products they offer. For mortgage refinancing, you may want to enlist the help of a mortgage broker to identify a suitable mortgage lender. If you have a real estate agent, he may also be able to direct you to a good lender or loan officer. Ask friends and family about their experience with their current lender. Doing your homework can provide greater assurance that you will find a suitable lender with the right loan product for you.
Eileen Rojas holds a bachelor's and master's degree in accounting from Florida International University. She has more than 10 years of combined experience in auditing, accounting, financial analysis and business writing.