Are You Considering Re-Financing? Part 1 in a Series

Homeowners who are considering refinancing their home may have a wealth of options available to them. 

However, these same homeowners may find themselves feeling overwhelmed by this wealth of options. This process doesn’t have to be so difficult though. Homeowners can greatly assist themselves in the process by taking a few simple steps. First the homeowner should determine his refinancing goals. Next the homeowner should consult with a refinancing expert and finally the homeowner should be aware that refinancing is not always the best solution. 

Determine Your Goals for Refinancing

The first step in any refinancing process should be for the homeowner to determine his goals and why he is considering refinancing. There are many different answers to this question and none of the answers are necessarily right or wrong. The most important thing is that the homeowner is making a decision which helps him achieve his financial goals. While there are no right or wrong answer to why refinancing should be considered there are, however, certain reasons for refinancing which are very common. These reasons include:

* Reducing monthly mortgage payments

* Consolidating existing debts

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

* Repaying the loan quicker

* Gaining equity quicker

Although the reasons listed above are not the only reason homeowners might consider refinancing, they are some of the most popular reasons. They are included in this chapter for the purpose of getting the reader thinking. The reader may find their mortgage refinancing strategy fits into one of the above goals or they may have a completely different reason for wanting to re-finance. The reason for wanting to re-finance is not as important as determining this reason. This is because a homeowner, or even a financial advisor, will have a difficult time determining the best refinancing option for a homeowner if he does not know the goals of the homeowner.

Consult with a Refinancing Expert

Once a homeowner has figured out why they want to re-finance, the homeowner should consider meeting with a refinancing expert to determine the best refinancing strategy. This will likely be a strategy which is financially sound but is also still geared to meeting the needs of the homeowner.

Homeowners who feel as though they are particularly well versed in the subject of refinancing might consider skipping the option of consulting with a refinancing expert. However, this is not recommended because even the most educated homeowner may not be aware of the newest refinancing options being offered by lenders.

While not understanding all the options may not seem like a big deal, it can have a significant impact. Homeowners may not even be aware of mistakes they are making but they may here of friends who re-financed under similar conditions and receive more favorable terms. Hearing these scenarios can be quite disheartening for some homeowners especially if they could have saved considerably more while refinancing.

Consider Not Refinancing as a Viable Option

Homeowners who are considering refinancing may realize the importance of evaluating a number of different refinancing options to determine which option is best but these same homeowners may not realize they should also carefully consider not refinancing as an 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 their mortgage situation.

For each 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 numeric calculations. However, if the analysis does not yield a clear cut answer, the homeowner may have to evaluate secondary characteristics to make the best possible decision.

Stay tuned for the next installment ......