Thinking of Refinancing Your Mortgage? Think Hard

With both the economy and the housing industry still working at a recovery, consumers are also still focusing hard on getting out of debt and avoiding bankruptcy and foreclosure. Many homeowners may be interested in refinancing their current mortgage at a lower rate to help save money and pay down some of their bills. They feel that reducing one of their larger financial obligations each month, they will have some extra cash to use elsewhere. However, in the current economic times, refinancing may not be the option to save any money and, in fact, may cost you even more than you are already paying.

However, refinancing your mortgage is not exactly going to be an easy procedure. Due to the economy, lenders, including those who are doing FHA mortgages are going to be raising the bar and those consumers who do not live up to the new standards may be out of luck for a good refinance. Lenders now want to see consumers have a higher credit score and tangible proof of income and asset before they will bring a good deal to the table. They would also like to see that any home equity loans and second mortgages have been paid off before a refinancing deal is made. Some consumers may find that even with a lower interest rate, a refinance is not a money-saving endeavor. There are higher fees associated with the refinance and end up deciding that a refinancing deal is too expensive to be relevant.

Credit scores and down payments will make a big difference in a lenders decision. Even with a score in the 700’s, lenders still would like you to contribute a 20% down payment, which is industry standard. Scores may be one of the determining factors because what used to be considered an excellent score now may just be average. You also better be ready to prove that you have income and assets. Even with all the right tings in place, lenders are not scared of raising interest rates if their conditions aren’t met exactly.

Before you go shopping for a refinancing opportunity, make sure a refinancing deal is a financially sound idea for your current financial situation. If your credit score has recently taken a hit, at below 720, or you still owe a balance on your second mortgage or home equity loan, you might be better off working first to improve your credit score and pay down your debt, while keeping your current mortgage intact. Rash decisions may lead to even higher fees and less savings of your money.