But you have to weigh the benefits of refinancing against the costs. There are usually thousands if not tens of thousands of dollars in fees incurred every time you refinance. This might not matter to you too much now, but it does get tacked onto your mortgage and could mean you’ll be paying it off for longer.

Reasons to Refinance

Usually people refinance for one of three reasons. There is the chance to lower your monthly mortgage payments, the possibility of paying off your mortgage faster, or borrowing cash against the equity you have in your property, maybe for a remodeling project or for buying a vehicle.

Whether or not it’s a good idea for you to refinance is basically a mathematical question, but then there is also the issue of what is happening right now. If you need a new roof before winter no matter what, then it may not matter to you so much that refinancing to get that extra money could add years onto your mortgage.

Interest rates will basically dictate whether or not refinancing is a good idea for you. Depending on what your current interest rate is, what the going market rates are, and whether the mortgage interest rates are fixed are variable, refinancing might just be the best option for you. If you do your research online, you can find a good mortgage payment calculator that can help you do the math and decide what your monthly payments would be with a new mortgage and how soon you would be able to pay it off. Once you have done the preliminary research online and gotten an idea of what’s out there, then it is probably time to talk to your lender.

They can talk to you more about mortgage refinancing costs, but the closing costs usually fall into three categories. There are lender fees, third-party fees, and pre-paid items. These costs all together usually come to about 2-3% of your mortgage amount. If these costs are outweighed by the financial benefits of refinancing, then it is probably the right decision for you.

Refinancing is when you currently have a mortgage on your property and are seeking to apply for a second loan in order to pay off the first mortgage. Refinancing carries with it a lot of fees, so it is important to weigh those in the equation when deciding whether or not refinancing is the fiscally smart thing for you to do in the end.

Sometimes refinancing can carry with it tremendous benefits, giving you some extra cash while at the same time reducing your monthly mortgage payments. This only applies if your home has already earned equity, that is, if you have already paid down much of your first mortgage or if your property value has risen considerably since you first purchased the home.

In addition, if the lending climate when you obtained your first mortgage dictated high interest rates, it is possible that the current lending climate is more favorable to borrowers, and thus you could obtain a mortgage with a rate that is much lower than the one you have now. A good time to refinance may be when the Federal Reserve is slashing interest rates. Lower interest rates will lower your monthly mortgage payment and also the amount that you ultimately end up paying for your home.

You could also shave years off of your mortgage by refinancing if you choose to maintain your current monthly mortgage payments but obtain a second loan with an interest rate that is considerably lower than the one your currently have.

Another reason to refinance is to trade an adjustable interest rate for a fixed interest rate. Adjustable rates mean that your interest rate may rise over time. This could significantly increase your monthly mortgage payments virtually overnight and render a previously affordable monthly payment no longer affordable. A fixed interest rate is basically security - security that you will be able to afford your mortgage payments tomorrow as well as today.

And of course, if you were able to take advantage of any equity you had built up in your home, refinancing can provide you with a surplus of extra cash. Maybe you have your eye on an expensive remodeling project, or maybe you need a new car. Whatever the reason, refinancing can provide you with the means to purchase these things.

There are bad credit mortgage lenders who are in the business of helping people with low credit scores, low income, or a high debt-to-income ratio. They can assist in getting your loan approved with much more speed than other programs offered by banks and credit unions. But this speed and assistance comes at a price. These bad credit mortgage lenders will often have a higher rate of interest as well as higher closing costs, and if the purpose of you refinancing in the first place was to get a lower rate, then there might not be too much they can do for you.

Therefore, it is definitely worth it to research the rates of various bad credit lenders and compare them. Chances are, you will have to pay a higher rate, but you could still find one that is reasonable and hopefully fixed so that you can escape for the high variable interest rate you are currently working with.

If you are able to wait a while, that will give you a chance to improve your credit score and then later try to get a lower interest rate loan. If you do go with a bad credit lender, make sure that your loan doesn’t carry a pre-payment penalty. A pre-payment penalty is when you must pay large amounts of interest for 6 months or more before you can begin to pay off the loan. If you have no choice but to take a loan with a pre-payment penalty, try to find the loan that has the shortest pre-payment term so that you are able to pay off the loan as fast as possible.

At any rate, make sure to shop around a lot before making a decision. Chances are, you will have the mortgage for a long time, so it is worth it to make a well-thought-out decision and not jump the gun.

Refinancing is the best option if you can qualify. You will want to switch to a fixed interest rate loan that is close to the same adjustable interest rate you are paying now. Only with the fixed, the interest rate will stay the same for the entire life of the loan and you will be able to sleep at night since you won’t have to lose sleep anymore over skyrocketing interest rates.

One of the hurdles to refinancing for you might be a prepayment penalty that you owe to your current mortgage. This prepayment penalty could cost you thousands of dollars. However, if it is between that and losing your house to foreclosure, it is probably worth just paying the penalty.

Another problem could be the current housing slump in the housing market. In some places, the values of the homes have fallen below their purchasing price. That means that you may be paying off the mortgage on a house that is no longer worth the price of your loan. This makes getting the credit for another mortgage for refinancing much more difficult, as lenders are tightening their lending practices.

It isn’t impossible to get a mortgage, but lenders now want to see higher credit scores, proof of income, and in some cases a down payment.

But if you are in the market for a mortgage refinance in order to avoid foreclosure, one thing that is working in your favor is that the lenders usually want to avoid foreclosure as much as you do. They lose money on foreclosures as well, because they have to turn around and sell your house for usually less than it’s worth. Because of this, some banks are letting people switch out of their adjustable rate mortgages into fixed ones for no extra cost or fees.

Contact your lender or mortgage company to see if such an option is available for you. If you are absolutely unable to refinance, another option may be certain types of bankruptcy. It will ruin your credit, but you will be able to keep your home and it may be preferable to foreclosure. But make sure you exhaust all of your refinance options first, because refinancing to avoid foreclosure is definitely your best option.

Do you have an adjustable rate mortgage (or ARM)? Maybe you decided on one because you wanted to make sure you were getting the lowest possible interest rate in a declining interest rate climate. Or maybe you just couldn’t pass up the low, low interest rates that adjustable rate mortgages typically have, especially at the beginning.

But now many people who initially chose adjustable rate mortgages are opting to trade theirs in for something that is a little more predictable. Adjustable rate mortgages are great as long as interest rates remain low, but if they start to spike upward, those borrowers could be in big trouble. If the interest rates jump unexpectedly, they could be looking at mortgage payments that are hundreds of dollars more each month than what they started with.

The answer is to jump over to a fixed interest rate, and the time to do it is when interest rates are at an all-time low. This locks you into a mortgage interest rate that will never change over the lifetime of the loan. So even if you refinance and get an interest rate that is slightly higher than the one you are paying now, it could still make good financial sense to do so, since the adjustable interest rates may be fated to go much higher than any of the fixed rates right now.

Find a lender who can help you do an assessment of your current mortgage compared to what you could get if you refinance. Do a little research online, and take advantage of the many mortgage payment calculators there are out there to help you figure out if refinancing into a fixed interest rate is the right thing for you to do.

One thing you might want to consider before refinancing into a fixed interest rate mortgage is how long you plan on staying in your house. If you know you will be moving out of your house in 3-4 years, then you may want to opt for something called a hybrid loan. A hybrid loan is one that has a lower, fixed rate for the first few years of the loan, and then afterwards it converts into an adjustable rate mortgage. This way, you could pay a lower interest rate and then sell your house before the higher rates kick in. If however you know that you will be staying in your house for the long haul, then you probably want to refinance with a fixed interest rate. Again, it is best to consult with your lending professional to determine what the best course of action for you is.