Responsible Refinancing

(There are many things to concern yourself with when taking out a mortgage.)

After finding the right loan and terms, you must have as much knowledge as possible about associated fees and the overall process to protect yourself from predatory lending.

This has become just as, if not more, important if you are refinancing. Since you have already gone through the mortgage process you know what to look for, so you are more comfortable and confident. This may work against you, however, because you may let your guard down a little, when you would not have in the past.

Allison Thompson’s article, “Refinancing the Responsible Way - Ways to avoid Predatory Lending Companies,” posted on ezinearticles.com explains how to regain that cautious edge to prevent yourself from making a major financial mistake.

The most common pitfall you will want to coax yourself to avoid is being taken in by a loan’s short term benefits and losing sight of what is important to you over the long haul.

“Certainly the major mistake that should be avoided at all costs when taking out a auto refinance on your home is to reduce the equity in your home too much.”

Many people work long and hard to build up substantial equity in their home. Cash out refinancing can wipe out just about all equity, leaving the home basically worthless. Only more years and payments will allow the homeowner to rebuild the equity again.

“But what must be remembered is that equity allows you to borrow against your home and therefore by reducing the equity that you have on your home through refinancing is not always the wrong decision. Say you decided to use refinancing to consolidate a number of other debts that you have then this decision may well help to strengthen your financial situation in the future.”

You must stay focused on what you want, though, because when you express interest in equity home loan s$$, the lender knows that you want something now, and that gives a predatory lender the chance to add on hidden fees, etc. that will be payable later.

When you’re refinancing, you will also have to decide whether you want a fixed rate mortgage (FRM) or an adjustable rate mortgage (ARM).

Many people refinance solely to change from an ARM to a FRM because the FRM will assure the borrower of consistent monthly payments. An ARM will adjust to the national prime rate after a fixed period for about three years. This new rate can end up being significantly higher than what you anticipated if the prime rate has increased.

The FRM is a safer way to go.

“The whole idea of refinancing to the same kind of loan that you have as to your current mortgage, just with a lower interest rate is a decision that you will probably not regret in the future.”

If you make a mistake and refinance for the wrong reason or agree to terms that you come to realize will not be in your best interest, you have a small window to back out of the deal due to the Federal Truth in Lending Act.

“This guarantees those people who refinance against their primary residence a 3 day grace period in which to back out of the agreement after the refinancing has closed, so long as they have refinanced with a lender who is different from the one that currently holds the mortgage on their property. This is called the ‘Right of Rescission’ and you may find that very few borrowers will take advantage of this option.”

Know your rights and options when refinancing and do not take the process lightly. Ignorance will open you up to predatory practices.

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