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By : Roby Hicks    99 or more times read
If you have observed the behavior of many borrowers, they tend to refinance when the interest rate is low. Many want to refinance their loan today because the interest rates are very low. However, you have to bear in mind several things before deciding to refinance your loan. They do this to reduce the monthly mortgage they are paying. Others want to refinance their loan because they want to shorten the period of their mortgage loan.

Before you decide, you need to be familiar with the different types of mortgage loan. This will make you aware of the options available to you. There are various types of mortgage. The FHA loans, the adjustable rate mortgage, the interest only mortgage and the reverse mortgage loan are just some of them. Once you know your option, it will be easier to decide.

What is a refinance anyway? A refinance happens when a borrower acquires a new loan to pay off his existing loan. As mentioned earlier, he does this to have better mortgage terms like lower interest rates as well as shorter mortgage period. Although this is what most borrowers want, the opposite happens if they are not careful when making decisions.

In order to make the right choice, keep these points in mind:

  1. Will you have better terms if you refinance? How much will you save? This is the first question you should ask yourself. Try to compute how much you will save each month if you continue with the refinancing. If the rate decreases by a point, will it affect the amount you are paying and the length of time you are paying it.

  2. How will you find the best option for you? In order to find the right option for you, you need to define your reason for refinancing. Is it just because you want to reduce your monthly payments? Or do you want to pay off the loan sooner?

  3. What are the costs you will incur? Some lenders say that you will not have to pay refinancing cost. However, look closely. They may be charging it on other items using other terms. Bear in mind that lenders want to earn too. Compare the different cost with other lenders before you decide.

  4. How will you choose a lender? Always compare the terms and rates of different lenders. Check their Good Faith Estimates (GFE). The estimates are reliable because if they change during the closing, the lender will pay for it.

  5. Can you negotiate for the different charges and fees? Yes, you can. This is why you need to familiarize the different items charged to you. If you do not understand some of the fees, do not hesitate to ask. Once you know which items are negotiable, negotiate with the lender. This will definitely reduce the charges you will settle during the closing.

Refinancing can help improve the terms of your payment. However, you have to be sure that the refinancing option you pick will make your monthly payments more bearable or will help you pay off your loan sooner.
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