With rates going quite low for the last 1-2 years, refinancing has become a very popular concept. A large number of people have become interested in refinancing their exiting mortgages at a lower rate and reduce their monthly payments. However, most of us don't know whether or not refinancing will be a good option for us. Here are 5 refinancing tips which can help you in getting a better deal and will prove beneficial for you:
1. Check out for pre-payment penalty: Most of us do not read through the fine print. As a result, we miss out on the various clauses mentioned in the docs. Most lenders mention the clause of pre-payment penalty. If you pre-pay your mortgage, you might be liable for paying a penalty to your present lender. Normally, the pre-payment penalty clause remains valid for the first 5-7 years. So, you should always make sure that you refinance the mortgage after the pre-payment penalty time period gets over. Thus, you won't be liable for paying any penalty to the lender.
2. Contact your existing lender for refinance: When you decide to refinance your mortgage, it will be a good idea to contact your existing mortgage lender for the same. If you have been a good borrower i.e. if you've paid your mortgage payments on time and have a good credit and financial situation, he will be more than happy to refinance the mortgage for you. Moreover your lender can even offer you special discounts on appraisals, surveys, inspections, etc.
3. Shop around for good rates and terms: If you don't want to go ahead with your current lender, then you should shop around for good rates and terms. Various lenders offer no obligation as well as free online consultation forms. Once you fill out these forms, you'll be able to know the terms and rates which will help you in deciding which lender you should go for.
4. Don't go for no cost refinancing: When you plan to refinance, you will find that a large number of lenders are offering you the option of no-cost refinancing. However, no-cost refinancing does not mean that it is free. After all, nothing comes for free in this world! Those who offer no-cost refinance will actually bundle the closing costs into the new mortgage itself. In such a situation, you may be charged a higher interest rate for the mortgage. Thus, the lender will look into his profit prior to giving you any benefit or advantage.
5. Take your time to close the mortgage: You should allow yourself adequate time to go through the mortgage docs and check out the details. You should make sure that you read through the fine print thoroughly and clarify all your doubts with the lender before signing on the dotted line.
Apart from the above mentioned tips, you should keep various documents at your fingertips when you contact your lender for refinance. These include your paychecks and W-2s, your employer's contact details, your social security number, your current mortgage lender's contact details, mortgage balance, value of your property and list of other liabilities that you owe.