Refinance Funding - How To Make It Work For You

Refinance funding for your home is something you will probably require at least once in your lifetime. The main reasons you are likely need refinance funding are:

• To reduce your mortgage. You can refinance either to get a lower interest rate, or to reduce the term of the loan (which means you will pay less overall).
• To consolidate debt. You can get the refinance funding to cover credit card debts, auto loans and other loans which may well have higher interest rates. This means you may pay lower interest overall, and you certainly have more control, with only one monthly payment instead of several.
• To gain stability by replacing a variable rate loan with a fixed rate mortgage.

So refinance funding can potentially be very beneficial for you. But there are some things you need to be careful about if you want to be sure of getting the best deal.

• Don't just automatically refinance with your existing lender without shopping around first. Of course it seems easier and less complicated to stick with the same lender, but you may well get a much better deal from a new lender. However, once you get your offer from the new lender, ask your existing lender if they can match or beat it, before signing up. They won't be keen to see your custom go elsewhere, so this can give you real leverage.
• Before deciding on any program, do a "break-even analysis" to determine how much you would save. Work out the total cost of the refinance, including closing costs and fees, and divide it by the amount your refinance will save you each month. The answer will be the number of months you will have to stay in your current house before you break even on the deal, and will help you decide whether it's worth your while.
• The lender has a legal obligation to send you the RESPA and Good Faith estimate of closing costs within three days of receiving your paperwork. Make sure you get this and read it - it will help you evaluate how good a deal you are getting as a whole, as opposed to just the interest rate.
• Consider whether you need to go for a full appraisal. A full appraisal can cost you more than the refinance funding is worth in terms of savings. In addition, if the appraisal figure is low, showing you have lost equity, you could find the terms of your refinance less favorable than those of your existing loan. Ask the appraisal company for a desk review appraisal, which is generally free of charge. This should help you decide whether you actually need a full appraisal.
• You should not, under any circumstances, pull cash from your home equity credit line, or take out a second mortgage, before refinancing your first mortgage. If you take cash out for anything other than home improvements, or to pay the cost of the refinance, the refinance will be considered a cash-out transaction. This could result in a premium added to the rate, and a reduced maximum loan-to-value. Also, having a second mortgage will almost certainly count against you when applying to refinance the first mortgage.

Refinance funding for your home is very often your best option if you need to raise finance or make savings. But don't just rush into it - tread carefully, to make sure you get the best deal. And make sure you consult a financial advisor before making your final decision, so as to make sure it is the right plan for you and your situation.

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