Guide to Refinancing Your Home Loan
How to refinance into a better mortgage without wasting time or money:
Step 1: Check your credit score. It's importan to know what your credit score is since that defines a large part of the qualification process. Your credit score will signal what rates, programs, terms, and cost structures you may qualify for.
Step 2: Find the right refinance loan for your needs. Evaluate your loan options. This means you should look at all loan programs, all available rates, and all terms offered. Evaluate your current financial position and match it to your mortgage. For example, if you are planning on selling your home in 3 years, then a 30-Year fixed mortgage may not be the best option. Rather, you may want to consider a 5-Year ARM or a 7-Year ARM, and obtain a lower rate by doing so (in most cases at least).
Step 3: Compare refinance offers and perform break-even analysis. While comparing all of your loan options, perform a break-even analysis. This will show you exactly what the costs are and how long it will take you to recover them. If you plan on getting a 5-Year ARM, for example, and your loan costs will not be recovered until the 10th year, then the loan may not make economic sense.
Types of Loan Programs to Consider:
Conventional Mortgage Loan - 30-Year fixed, 20-Year fixed, 15-Year fixed
FHA Mortgage Loan - FHA fixed mortgage, FHA streamline refinance
Jumbo Mortgage Loan - Mortgages that are higher balance loans outside of Fannie Mae and Freddie Mac guidelines
VA Mortgage Loan - Mortgage designed specifically for veterans who have served in the US military
Refinance Rate & Term Mortgage Loan - Mortgage designed to reduce the rate and term of your mortgage
Purchase Mortgage Loan - Mortgage designed to help facilitate the purchase of a home
Cash-Out Mortgage Loan - Mortgage designed to provide cash out by converting equity into a new loan