Don't Get Caught Refinancing

According to some of my favorite news sources, a lot of us are starting to get in some trouble with our debt. We're becoming delinquent on mortgage payments, which puts us in a particularly bad position. From there, we try to refinance. In some cases, this means we're trying to move out of ARMs into fixed rate mortgages. And this is where the lenders are catching us with what looks like a safety net, but it's full of costly traps.

Some deals are just plain bad. What if your existing mortgage has a prepayment penalty? Refinancing could cost you thousands. Further, you have to be sure you aren't signing up for a new mortgage with a host of hidden fees. Anything which is going to add to the interest-owing balance is likely a bad deal. Also, don't be sweet talked into taking a mortgage term which is longer than your existing term. While it may lower payments now, it will cost you potentially thousands more in interest over the longer term. Lenders are banking on you making a panic move to another mortgage, and they have lots of sales pitches to sell you on the idea.

What if it really is right for you? What can you do if you're feeling squeezed by your adjustable-rate mortgage and fear rising interest rates and payments? First, make certain you can refinance. If property values have declined in your area, your home's appraisal could be short of what you'll need to qualify for a new loan.

Second, determine whether your existing mortgage has a prepayment penalty and calculate its cost. If it costs more to move than stay, you should stay with your existing mortgage.

Third, check your credit report for errors substantially in advance of refinancing or getting a new mortgage. You're entitled to one free credit report from each of the three major credit bureaus annually. Clearing up a problem on your report could get you a better interest rate, and save you money.

Always beware of unscrupulous lenders. Check carefully into any and all fine print. Don't be rushed into a decision. If the lender is worthy of your business, the lender can wait for 2-3 days for you to make a decision.

Finally, before you refinance, ask your current lender for a lower rate. Some lenders may refinance your loan to keep your business. You likely won't need to pay as many fees because the lender already has your records. And that's the idea.

Michael

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