Mortgage lenders are desperately trying to overcome all of their recent struggles and reduce the high rate of foreclosures, and new opportunities have become available for well-qualified borrowers to take advantage of historically low interest rates. Before rushing into any new loans, however, a wise consumer will evaluate the offer and consider the following factors. Saving money is normally a top priority of most individuals, so it pays to know when to refinance.
Many mortgage offers that come to the mailbox of most homeowners have some type of catch to them, but there still are good opportunities to be found. The number one thing a consumer must consider when evaluating any type of loan is the interest rate and its characteristics. Low interest rates should obviously be the target of any wise consumer, but it is important that a borrower makes sure that the terms are not going to change over time. Teaser interest rates may only be offered for the first couple of years, and the mortgage may then have an adjustable rate. Most individuals are best suited by a fixed interest rate with a set term.
Borrowers must also ensure that they completely understand any processes and procedures that will be involved with refinancing their loans. The loan process may include appraisals and inspections, so these costly items should be discussed and clearly explained. Consumers must also have a good idea regarding how long they plan to pay for the mortgage. Individuals that are considering a move within 2-5 years are probably not good candidates for a refinance.
All of the fees associated with any loan can also be important indicators of whether or not it is the right time to refinance. When lenders are desperate for good clients, the fees are often much lower and in favor of the consumer. Any origination fees or points paid to lower the interest rate should only be accepted on the loan if they indeed will save the borrower money over a reasonable period of time.
Knowing when to refinance is not always clear, nor is it easy. No two situations or scenarios are exactly alike and each individual's circumstances are bound to be different. Many other factors are going to help determine whether a consumer is likely to receive a favorable offer. Such factors include the borrower's credit score, employment history, and income. The best thing for a wise consumer to do is carefully research any opportunities to refinance and judge all of the accompanying pros and cons.