Working With a Mortgage Lender to Refinance Home Mortgage

For many homeowners, the government mortgage relief program has offered a welcome aid in reworking and refinancing an unwieldy mortgage. Unfortunately, not all homeowners qualify for mortgage assistance from the government even if a mortgage refinance would make sense. Fortunately, you may be able to work with a mortgage lender to refinance your mortgage, even if you don’t qualify for government mortgage aid.

Why Refinance Your Mortgage?

There are many different reasons to refinance your mortgage. Before you start shopping around for a new mortgage to replace your old one (which is essentially what “refinancing your mortgage” means) you should decide exactly what you want to accomplish by refinancing. Once you determine your objectives, you can sit down with a reputable lender and explain your goals. The lender will have a much better idea of the financial products that will suit your needs if he knows your intent.

Top Reasons to Refinance a Mortgage and Ways to Get There

* Lower Monthly Payments

One of the most common reasons to refinance a mortgage is to lower your monthly payments. There are two ways to accomplish this — lengthen the term of your mortgage or lower the interest rate of your mortgage.

You’re most likely to qualify for a lower interest rate if your credit rating has improved considerably since your original (or current) mortgage. If you’ve been paying steadily on your mortgage without missing or being late on a payment for at least two years, and if you have kept other bills and accounts current as well, there’s a good chance that you’ll qualify for a mortgage refinance at a lower interest rate. This is an ideal situation, since you’ll also save money in the long term if you can refinance to a lower rate.

Your other option to get a lower mortgage rate is to apply for a mortgage with a longer term — from a 20 year to a 30 year mortgage, for instance. This is a far less desirable refinance option, but if you need to lower monthly payments because you can’t afford your current high-rate mortgage, it may be your best option. In this case, you’ll most likely be trading lower monthly payments for a higher overall cost.

* Switch from Adjustable Rate to Fixed Rate Mortgage

The second most common reasons for refinancing your mortgage is to trade in an adjustable rate mortgage for a fixed rate mortgage. Millions of homeowners took advantage of low teaser rate hybrid mortgages over the past decade, only to find themselves paying on mortgages with interest rates that had pushed monthly payments out of the affordability range.

There are a few things to keep in mind if you’re attempting to switch from an adjustable rate to a fixed rate mortgage. In most cases, you’ll have to accept a higher interest rate than the prevailing adjustable mortgage rates in order to get a fixed rate mortgage. The advantages to the fixed rate mortgage include a stable monthly payment. The disadvantage is that interest rates might fall, and your fixed rate mortgage will be higher than an adjustable rate mortgage.

* Pay off Your House Sooner

Yet another reason for seeking to refinance a mortgage is to get your house paid off sooner and get out of debt. The collateral advantage to refinancing to a shorter term is that you’ll also pay far less for your house over the long term. You should consider refinancing to a shorter term if you can now pay a higher monthly payment than you could when you took out the original mortgage. While you’ll probably pay higher monthly payments if you shorten the term of your mortgage, you’ll be paying far fewer payments, and that can add up to huge savings over the full term of your mortgage.

In addition to knowing why you want to refinance your mortgage, your lender will also need to know your home’s current value and the amount that you still owe on your current mortgage. Ideally, you’ll want a new mortgage to pay off your old mortgage and leave you some cash over. In the current topsy-turvy market, that may be more difficult than expected.

If your house is worth more than 5 percent less than you currently owe on your mortgage, for instance, the government won’t give any assistance on refinancing a mortgage. Some private lenders may be willing to lend up to 125 percent of the home’s current value for lenders with good credit.

As always, the more you know about the process, the better your position will be when it comes to choosing a lender and a mortgage product. Learn as much as you can about your options before applying to refinance your mortgage with a local lender.

Jeremy Foster is a freelance writer who writes about mortgages and home ownership, offering tips such as how to find the mortage lender.

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