10 Questions to Ask Before You Refinance Your Home

Drastic changes in finance may make this an idea time to consider refinancing your home. Statistics show that many people are locked into mortgages that aren’t a good fit for their personal economic situation. But before jumping into the first refinancing offer you receive, there are ten factors you need to consider.Are you responding to a “stranger’s” offer to refinance your mortgage. There are a lot of mortgage brokers out there looking to profit off the current trend toward refinancing, and not all of them are reputable. Just because one company sent you an offer to refinance that doesn’t mean you have to refinance with that company. Check out your options. How long has the company been in business? Do they have any unresolved complaints with the Better Business Bureau or local regulatory agencies?If you’re looking to take out equity, what do you plan to use the money for? Using equity for bill consolidation can minimize some financial stress-as long as you don’t turn around and max out those paid-off credit cards and end up in worse shape than ever.If your current loan is with your local bank, you may want to check into refinancing with them. While no banker will let you slide indefinitely in the event of a problem, a local bank that knows you may be better able to work with you in the event of a future problem.What are the upfront costs of refinancing? While the lender may offer programs that don’t require you to pay anything out of pocket, the closing statement may reflect costs that are deducted from your share of any equity.What are the long-term costs? Chances are, if your monthly payment is lower, your total cost will be higher.What changes are being made to financial terms? Most people want to get rid of uncertain Adjustable Rate Mortgages and balloon payments, but you want to keep the option of prepayment without penalty.If refinancing includes a second mortgage, will you be able to afford both payments?What other terms are changing? Does the lender require additional insurance or other escrow payments?Will refinancing improve your debt to income ratio? If so, refinancing can help your credit score.Finally, what other options are available, and how do they compare? (For example, if you’re considering refinancing to pay off a large medical bill, would you save money by negotiating a separate payment plan or lump sum settlement for the bill?)By considering these questions, you can know if the time is really right for you to refinance.