A wealth of options is available to homeowners who are considering refinancing their home mortgage payment. Nevertheless, this wealth of options can be quite overwhelming and homeowners may find themselves confused by this wealth of options.

This process doesn’t have to be so difficult though. A few simple steps can greatly assist homeowners in the process.

First, the homeowner should determine his mortgage refinancing goals. Next the homeowner should consult with a mortgage refinancing expert. Finally, the homeowner should research all options and be aware that mortgage refinancing is not always the best option.

Determine Your Goals for Mortgage Refinancing

A first step is for the homeowner to determine his/her goals and know exactly why he/she is considering refinancing. There are different reasons to refinance but it is important for the homeowner to have his/her financial goals clear. Common reasons to refinance include:

* Reducing monthly mortgage payment

* Consolidating existing debts

* Reducing the amount of interest paid over the course of the loan

* Repaying the loan quicker

* Gaining equity quicker

Consult with a Mortgage Refinancing Expert

After determining the primary goal for mortgage refinancing, the homeowner should consider meeting with a refinancing expert to determine the best mortgage refinancing strategy. This will likely be a strategy which is financially sound but is also still geared to meeting the needs of the homeowner.

Some homeowners who are particularly well versed in the subject of refinancing might consider skipping the option of consulting with a refinancing expert. Not understanding all the options may have a negative significant impact. Therefore, consulting with an expert is recommended because even the most educated homeowners may not be aware of the newest refinancing options being offered by lenders.

Consider Not Refinancing as a Viable Option

This is often referred to as the “do nothing” option because it refers to the conditions which will exist if the homeowner does not make a change in his/her mortgage situation.

For each mortgage refinancing option considered, the homeowner should determine the estimated monthly payment, amount of interest paid during the course of the loan, year in which the loan will be fully repaid and the amount of time the homeowner will have to remain in the home to recoup closing costs associated with refinancing.

Homeowners should also determine these values for the current mortgage. This can be very helpful for comparison purposes. Homeowners can compare these results and often the best option is quite clear from these values.

Three credit report agencies determine your ability to secure a loan: Equifax, TransUnion, and Experian.  A FICO score, a widely known credit score, can range from 320 to 850 and it determines the creditworthiness of a person or the likelihood of that person to pay their bills.  Therefore, your FICO score will determine the interest rate and the maximum amount that the bank will lend you.

In the US, you are allowed to ask for one free credit report within a 12-month period but not a free credit score. You can contact any of the agencies to order your credit score. It helps keeping an eye on your score as it will have direct bearing on whether or not you can secure a loan in the near future.

Before the economic downturn, loans were given out like candy by predatory lenders.  Since the banks put a freeze on lending, you may be surprised to find that your FICO score may not be high enough to obtain a loan, and if it does fall within the parameters of acceptance, your interest rates are going to skyrocket.

Here are three loan examples, along with FICO scores, interest rates, and monthly payments.  These estimates will be based on the highest FICO score and what is now considered the lowest for each loan type in New York.

Car Loan: $17,000                                                             Low End FICO Score

FICO Score: 720-850                                                        500-589

Interest Rate: 6%                                                                 15.755%

Monthly Payment: $517.00                                          $596.00

15 Year Home Equity Loan: $50,000

FICO Score: 740-850                                                        620-639

Interest Rate: 7.963%                                                       12.221%

Monthly Payment: $477.00                                          $607.00

30 Year Fixed Mortgage: $300,000

FICO Score: 760-850                                                        500-579

Interest Rate: 5.676%                                                       10.473%

Monthly Payment: $1,737                                              $2,738

The difference between the high end and low end scores are significant, especially for a 30-year fixed mortgage where a low FICO score costs an additional $1000 per month.

While auto dealerships cannot obtain the funds from the banks to add to their inventories, while banks are not willing to lend money (even though there was a 700 million dollar bailout), and with major companies now laying off thousands of employees – perhaps one’s FICO score has little significance.  However, this is an incorrect assumption.

Depending upon when the economy is revived and when the volatility in the stock market subsides, the best recommendation anyone can offer you at this time is to obtain your credit reports, check for errors, and do all you can to increase your FICO score.  It is that significant to you and your financial future.

Refinancing mortgages has become routine these days. At one time, the first mortgage was the only one that you maintained till maturity. However, as interest in real estate investment and the increased use of credit cards by consumers have led to more debt, refinancing has become a popular option for homeowners trying to get out from under. Here are a few of the reasons why people consider refinancing their home mortgage. Continue Reading