Refinancing Your Mortgage

The news is full of stories on refinancing mortgages. It is not that surprising considering that much of the recent economic trouble has been tied to various mortgage products, including adjustable rate mortgages that have many homeowners scrambling to refinance into a fixed rate mortgage. Interest rates are still declining and refinancing a mortgage can have significant financial benefits.

If you think a refinance might be in your future, you should research interest rates and the associated fees carefully before deciding. Interest rates are at historically low levels making it a very good time to refinance your mortgage. Be aware that many banks are charging higher fees to refinance and you should choose your lender carefully. These are the steps for refinancing your mortgage:

1. Research Interest Rates. You should call your local bank as well as research mortgage rates on the internet. It typically does not pay to refinance unless you can reduce your interest rate by at least two percentage points. You may be able to renegotiate your interest rate with your current lender. This is technically not a refinance, but will require an amendment to your current mortgage.
2. Take Care if Your Credit Score is Low. If your credit score is 620 or lower, be sure to shop around for mortgages. With higher credit scores, interest rates and fees tend to be very similar, but because lenders use different methods to evaluate the risk of subprime mortgages you might receive widely different offers from subprime vendors.
3. Choose a Lender. You can contact banks directly or go through a mortgage broker to refinance your mortgage. A mortgage broker can typically get lower interest rate deals, but you will likely have to pay a fee for the broker's services. Your realtor might be able to recommend a mortgage broker to you.
4. Review Any Fees. Average fees for a refinance are on average about $2,000. This does not include any discount points or loan origination fees, as these are dependent on the size of the loan. The closing costs can vary widely depending on the lender policies, type of loan and age of the existing loan.

You should also consider whether or not to pay for discount points. These are fees paid upfront to lower the interest rate. The amount of time you plan to be in the home is a big deciding factor on whether to refinance and if you should also pay points.