Thursday, June 9, 2011

Avoiding Pitfalls of Mortgage Refinance

By Jim Parker


During our slow economy, homeowners have been able to reap many good benefits. Banks are offering deals on refinancing and new mortgages as they compete for your business. Choosing the wrong offer for a particular loan need could destroy your money situation, but a good proposal could save you thousands of dollars.

It is important to explore the many options and learn the basics of different mortgages before deciding which loan is right for you.

Everyone you talk with is obsessed with interest rates. There are other factors of importance when shopping around such as the amortization schedule, term length, lender fees and closing costs. Lenders are required to provide you with a Good Faith Estimate after you have received an application, but it is wise to request this document before signing on the dotted line. Closing costs can quickly delete any savings you would normally receive from refinancing. Always calculate the fees to determine if it is valuable to make the transfer. Compute your break-even point to determine how long you will have to stay in your home before seeing any kind of savings.

One should consider locking in an interest rate to prevent any changes that may occur as the loan is being processed. These can change while a loan is being processed and you may end up with a higher cost when the final paperwork is completed. Ask the lender to put the agreed upon interest in writing and verify it when all is complete. Banks do not have to do this unless requested. Adjustable rate mortgages are not ideal for most borrowers unless they intend to sell the property within one year. Monthly payments will raise and lower depending upon the interest rate. Numerous individuals have found themselves in foreclosure status when the payments become extremely high.

Individuals who are comfortable with their regular bank should not just automatically get loans from them. This is not a good practice and one should always shop around for the best rates. A loan is normally acquired for a huge purchase and no one should have to settle for a higher rate. Even if you received prior loans from your bank, there is still a requalification process. Predatory lending is still a common practice within the market. Despite laws to protect borrowers, many will continue to be overcharged. These charges are usually on interest rates and lender fees. Banks are profit making businesses and will continue to get the most out of every customer.




About the Author:



No comments:

Post a Comment