Refinancing a House is about as mind boggling as buying the home in the first place. There are a lot of questions that run through the mind of an individual about to embark on one of the more important financial decisions of a lifetime. In many cases, refinancing a house means losing money, either now or in the long run. There are interest rates to consider (yours and the market’s) not to mention the cash required in almost all cases for closing.
In order to avoid losing money, the refinancing plan should be a decision based on long term issues rather than short term financial stress. When people run into financial problems, their first inclination is to begin lowering their bills, however refinancing generally isn’t free. Those that are tend to have a catch somewhere that often isn’t obvious until well after the refinancing deal is done.
By analyzing the current market and determining how your current interest rate stacks up against the proposed interest rate is the first basic step. However, if you have a fixed interest rate and you are considering a variable interest rate, chances are the variable will find a way to rob you down the line.
Consider the value of your home. How fast is it appreciating? Is the neighborhood around you up-scaling or downscaling? Equity can often be attained faster in a home that is rapidly appreciating with a lower interest rate than one in that is averaging the same value or God forbid depreciating. However, if you were lucky enough to get into a neighborhood just before a real estate boom, then you are likely to be a lucky minority who will not lose money on a refinance.
The basic rule of thumb when it comes to refinancing a house is pretty cut and dry on paper. Of course nothing is that cut and dry in real life. An interested party who is planning on staying in their home for at least three more years and is looking at a lower fixed interest rate in a home and a neighborhood that is rapidly appreciating is likely to walk away with a better deal. Anyone planning on moving in under three years, lives in a neighborhood where homes are either averaging or declining and is interested in a variable interest rate is likely to lose money on the deal. However, since we don’t live on paper, other influential factors can be brought into play.
For instance, not all homes in a neighborhood are of equal value, and in some cases, a very nice home can appreciate while the surrounding homes depreciate. The appreciating home will naturally be slower to gain a very high value but can still appreciate at a reasonable rate. Adversely, the opposite can be true.
Some lenders charge phenomenal closing costs while others charge none. The variances in these costs are worth significantly investigating as obviously it takes cash on hand in order to provide for the high closing costs. We’ve all seen commercials televised advertising online applications, multiple offers, and zero closing costs. These come back with mixed reviews by the public who actually utilizes them. Some feel there was extra hassle but it was worth it, some feel they got hammered on the latter end of their loan, and others felt that it was a fairly good experience. In essence, these deals are determined by which company you choose, how far you’re willing to go to avoid the dreaded closing costs, and whether or not you’re comfortable never being able to speak to a real live human being in an office or at your own home. In some cases, their representative are work at home loan officers, which is fine, except when you want to reach them on your schedule.
If you have analyzed the current market as it applies to you and your home, and you feel that you would be better off with a strong refinancing plan, you are probably accurate. However, some people do run their plan and their desires by a financial planner which can be a saving grace. Often a financial planner can foresee challenges or forgotten considerations when it comes to first time refinances.
Once you have determined that your plan is solid and stable, the rule of financing is shop where you are comfortable. For some people, online business is the world’s best invention. For others, only person to person business will do. Shop around, but shop where you are in your element. It’s a lot of money, your money, and you don’t want to have a knot in your gut when it comes to your money.
Lastly, talk to people, if possible, who have refinanced a house. Talking to people who have gone through an experience that you are looking to go through will offer a different viewpoint, but don’t forget that every experience is individual. You can get great tips from talking to people. You can also get your ear talked off about the negative aspects of any project when a person has had a bad experience. Take it for what it’s worth, watch for the pitfalls, and do your homework.