How to Refinance Your Home

Refinancing to a lower interest rate can reduce your monthly payment, and free up cash to reduce other consumer debt. Perhaps you want to tap into your equity to achieve a predetermined goal. Refinancing can accomplish this for you.

1. First: Is it right for you?

   Expert opinions vary as to the minimum spread between the existing interest rate and the new interest rate to make refinancing a worthwhile process. But the expert that has the right answer for you is you. A true measure of the value of refinancing is determined by finding your break even point. There are costs associated with refinancing, including but not limited to, appraisals, inspections and prepaid points. Examine the costs and total them up. Subtract your existing mortgage payment from the proposed new payment. The result is your potential monthly savings. Now divide that number into the total cost to refinance. The answer is the number of months it takes you to reach your break even point. In other words, how long does it take to recoup your costs of refinancing before you begin to truly benefit from the lower payment.

2. Second: What is next?

   The next step to refinancing is to gather your financial statements including proof of income, current debt load, current balances in all savings and investment accounts and two years of income tax forms. Free credit reports are available to consumers once a year, order and review yours from each of the national credit reporting agencies. Work to resolve any negative issues reflected in the reports; the higher your credit rating, the better deal you get.

3. Third: Now what?

   Start with your existing lender, chances are they might negotiate to keep your business. Before meeting with them, shop around and bring competitive offers to the table with you. This shows you have done your homework, and that you are informed and ready to seriously discuss their best offer. If your lender cannot meet or beat competitors' offers, do not hesitate to seek the best deal with a new mortgage company.