Falling behind on mortgage payments is one of the most intimidating financial struggles that most homeowners will experience. Since late mortgage payments can ultimately lead to a foreclosure, homeowners are eager to look for solutions once mortgage debt becomes a problem. While loan modifications where homeowners can negotiate the terms of their existing loan are a popular solution, they aren't the only option on the market. Now, many homeowners are considering the benefits of refinancing to successfully repay their mortgage debt.
Refinancing allows homeowners the opportunity to replace their existing loan with a new loan that has lower interest rates and friendlier terms. These benefits are some of the reasons more and more homeowners are seriously considering refinancing over a loan modification. While refinancing poses its benefits, there are many challenges such as declining property values, late payments, or a loss of income. By knowing the considerations for a successful refinancing, homeowners will be one step closer to eliminating mortgage debt.
5 Important Elements for Successful Refinancing
Homeowners seeking to eliminate mortgage debt should weigh the pros and cons of refinancing versus loan modification. If you select refinancing, be sure to:
1. Shop around. Since refinancing gives you the opportunity to replace your existing loan with a new one, truly do all your research and discover all of the options available. Mortgage rates vary wildly, so don't just settle for a deal that's better than your current loan - find the best deal, period! Consider the fees, quality of service, company reputation, and referrals from family and friends. In other words, look at more than just the interest rates.
2. Determine your break-even point. You'll have to pay fees for refinancing. Ensure that your break-even point is within site and that you'll actually save money by going through the hassle of refinancing. In general, if you can get the rate to drop by at least 0.5 percent, then you should consider refinancing.
3. Don't trust "No-Closing-Cost." If a lender claims no closing costs, then be sure to look for those costs elsewhere. They can appear as upfront charges, "rolled-in" closing costs, or as low-cost refinancing. It's up to you to determine which scenario is best for your financial circumstances. By keeping this in mind, you'll be able to save more money to put towards eliminating your mortgage debt.
4. Consider cash-in refinancing. Just as you can cash-out refinancing, you can also cash-in, where you swap for smaller mortgages instead of larger ones. With today's low rates, it's a good time for homeowners that qualify to take advantage of this opportunity.
5. Confirm and lock-in your rate. Be sure to lock-in your rate and have it confirmed when refinancing. If the rate is variable, you could end up with higher rates than your current loan, which defeats the purpose and strategy of refinancing. By keeping this in mind, you'll be able to truly save money and eliminate your mortgage debt!