Refinancing Your Home Loan

Considering the country's current economic climate, I've had many clients come into my office recently and ask if they should refinance their mortgage. Today, consumer credit is harder to come by and underwriting standards for home loans have been considerably tightened. Interest rates, both fixed and adjustable, are higher than they were a year ago.

But for many, refinancing their current home loan is a logical step. This is especially true for home borrowers who have good credit, increased income versus when your loan originated and above-average home equity.

Expert advice
For those with adjustable-rate mortgages (ARMs) about due for an interest-rate reset, refinancing the loan terms into a fixed-rate product makes sense. Rick Sharga, senior vice president at RealtyTrac, a firm that tracks national rate trends as well as home foreclosure statistics, offers a few tips for those considering a mortgage refinance.

Sharga recommends considering a local community bank or credit union rather than a big national bank or mortgage company. Local financial institutions are more grounded in the real estate market in your hometown and have a better grasp of local price trends. Local banks or credit unions also hold or portfolio their loans, so as a result they're more likely to be flexible in loan underwriting rules than larger out-of-town lenders.

Keith Gumbinger, of HSH Associates, suggests you know your credit numbers before you apply for a mortgage refinance loan. Many loan officers look more favorably on prospective borrowers who have pulled their credit report and are aware of their FICO Credit Scores, and prepared to discuss areas of strength and weakness to the loan officer.

Federal law entitles everyone to a free copy of their credit report once each year from each of the three major credit bureaus. Visit AnnualCreditReport.com for your annual free credit report.

The fine print
Read all the fine print in your good faith estimate of closing costs. This summary cost disclosure is required within days of a loan application. It estimates all loan costs and financing terms, and allows you to closely review them before you commit to any loan product.

Although new, tougher federal regulations protect consumers from unscrupulous lending practices, the good faith estimate will reveal certain loan fees that might be unsettling. Question your lender or real estate professional if you don't completely understand or agree with any terms.

Lastly, watch out for terms that include 'negative amortization' — a potentially-unethical practice that reduces the interest rate at the origination of the loan, but adds that rate discount to loan principal, resulting in a higher amount borrowed.

In today's challenging mortgage-rate environment, many lenders are not issuing new or refinanced mortgage loans. Gumbinger advices people to be persistence and to reach out to multiple lenders to compare rates and terms before selecting the lender they finally decide to use. If one lender rejects you, shop around and check with others.

'Credit streams are very uneven around town these days,' Gumbinger says. 'Some lenders are well capitalized, others are not. The variability is wide.'

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