So what are the steps to refinancing a home mortgage? Well, if you ask 20 different mortgage folks this question, you’ll probably get 20 variations on a theme. In truth, you could start with a number of different steps to achieve the same end result. But let’s keep things simple, shall we.

Here is a good overview of the steps to refinancing your home loan. While you may not go through the process in this exact manner, it will at least give you a better understanding of what to expect.

Home Mortgage Refinance - Step by Step

• Step 1 - Review your credit reports and scores. For many people, the point of refinancing a home mortgage is to take advantage of lower interest rates. The market will partly determine what rate you get on the new loan, but your credit score plays a major role as well. You can start this important step by visiting the Tools section of this blog.
• Step 2 - Choose a home mortgage refinance lender. Some lenders only offer financing for the purchase of a home. Some lenders provide refinance loans and regular home loans as well. Other lenders specialize in mortgage refinance services. My advice is to go with a trusted name in this industry, which is why we recommend LendingTree (see link above). Learn more about the important step of choosing a lender.
• Step 3 - Get quotes and estimated closings costs from your chosen lender(s). Before you take any further steps in the refinancing process, you must determine if a mortgage refi even makes sense in your current financial situation. To do that, you’ll need to know what kind of interest rates a lender is willing to offer you, as well as an estimate of the closing costs on the refinance loan.
• Step 4 - Determine your break-even point (BEP). This is one of the most important steps to refinancing a home mortgage loan, because it will help you determine if you should pursue a refi in the first place. In some situations, it doesn’t make sense to refinance because the amount paid (in closing costs) will exceed the amount saved (from the lower rate). Learn more about the break even point.

Is this a simplified version of the process? Of course it is. Are there more refinancing steps than those listed above? Sure there are. In fact, entire books have been written about the refinance process, and the many steps involved with it. But that’s not the point of this blog post.

The point here is simply to get you thinking about the key steps to a mortgage refinance — checking your credit, shopping for a lender, obtaining quotes, and determining your break-even point and potential savings. Good luck with your refinancing process!

Many people feel the same nervousness about home refinance loans. Granted, homeowners are typically more educated about home financing than first-time home buyers are. But even so, the process of home refinance can be intimidating if you’ve never been through it before.

The key, then, is to learn about home refinance from all angles. Once you learn the basics, you will know (A) whether or not refinancing is a good idea for you, (B) how to move forward with the process, and (C) how to get the best rates on your new home loan.

And what better place to start than with home refinance terminology?

Learning Home Refinance Terminology

We have a variety of resources on this website to help you learn about the “lingo” of the home refinancing world. Simply by perusing the many articles on our website, you can get a feel for the concepts and terminology associated with the home refinance process. We also have a glossary of general mortgage terms you can use.

An example of a commonly used term related to home refinancing is the “break-even point.” Not only is this a common phrase in the industry, but it’s also a key concept you must understand before you pursue a home refinance loan in the first place. The break-even point refers to the point at which it makes sense for you to finance your home mortgage. It is when the money you save (by paying lower interest on the new loan) exceeds the money you spend (for closing costs on the new loan).

You can learn more about the break-even point (BEP) from this explanation of refinancing costs.

Remember, you must learn everything you can about the home refinance process before venturing into it. And terminology is a great place to start. In addition to using this website, seek out other sites that provide glossaries related to mortgage refinancing and similar topics.

Good luck!

In fact, we are seeing a lot of this on the news right now, with the so-called “mortgage crisis.”

Later on down the road, many of these same homeowners will seek ways to lower their interest rate (and thus their mortgage payment) through a bad credit mortgage refinance loan.

But my question is … isn’t this a bit of an oxymoron? A contradiction in terms? In other words, does it even make sense to try and refinance a mortgage loan when you still have a bad credit score?

As with anything else in real estate, these questions can only be answered on a case-by-case basis. But in general, a bad credit mortgage refinance is a bad idea … at least from where I’m standing (with the objective advantage of not working for a mortgage lender).

One of the primary reasons homeowners seek to refinance their home mortgage loans is to secure a lower interest rate on the new loan — and, by extension, save money over the life of the new loan. Generally speaking, there are two ways you can get a lower interest rate on a new mortgage loan: (A) take advantage of a drop in the prime interest rate, or (B) take advantage of your newly improve credit score to negotiate a lower rate on the new loan.

You can probably see why I think the bad credit mortgage refinance is something of a quandary. If you are thinking of refinance your mortgage but you still have bad credit (as compared to the national average), then option ‘B’ above is not really an option for you. In that case the only way for your bad credit mortgage refinance to be worthwhile is if the prime interest rate had dropped considerably.

If you refinance a home mortgage loan with a bad credit score still “haunting” you, then you will still be viewed as a subprime borrower in the eyes of most mortgage lenders. Thus, they will still charge you a much higher interest rate on the new loan than they would charge a borrower with good credit.

So whenever somebody asks me about bad credit mortgage refinance as a financial option, I usually tell them to focus on improving their credit score before trying to refinance the loan. That way, you can secure a lower interest rate (in most cases) and make your mortgage refinance worthwhile.

Related articles:

• Increase Your Credit Score Before Refinancing
• When to Refinance a Mortgage Loan

Because let’s remember the all-important rule of thumb: If the money you pay to refinance your mortgage (the closing costs associated with it) exceeds the money you save over the term of the new loan, then it doesn’t make any sense to refinance the loan.

This is where calculators come into the picture. A refinance mortgage calculator can help you run the numbers to see where you’ll come out after the refi. More specifically, it will help you compare your current mortgage payments to your new payments after refinancing the mortgage. You can then compare your savings to what you might expect to pay in closing costs to see if the refinance makes sense.

That’s why I always tell people to start the research process by using a refinance mortgage calculator to run the numbers. The question is, where do you find the best refinance mortgage calculator … or does such a thing even exist?

Here’s my advice to you. I wouldn’t rely on just one refinance calculator. I would bookmark two or three of them and use them all to validate one another. It’s kind of like using a scale to weight something. How do you really know if the scale is accurate? You don’t, unless you compare it against other scales to validate the reading.

You can do the same thing with refinance mortgage calculators — and I highly encourage you to do so. So instead of searching high and low for the best refinance calculator (and wearing yourself out in the process), just find two or three decent calculators and use them all.

If you’d like, you can start with the one we have on our Resources page. Then all you have to do is find a couple more calculators and bookmark them for future reference.

But you have to know what the interest rates are doing in order to make smart decisions about refinancing your home loan. And according to a recent article by the San Francisco Chronicle, interest rates are likely to fluctuate some more as a result of recent actions by the government.

To quote the article:

The economic stimulus bill that President Bush signed Wednesday has plunged people who are trying to buy or refinance an expensive home into jumbo limbo. The bill raises the maximum mortgage that can be purchased by guarantors Fannie Mae and Freddie Mac. Today that limit is $417,000 across the continental United States. Anything below that limit is called a conforming loan; anything above it is a jumbo. -Source

What does this mean if you’re planning to refinance your home mortgage loan? Well, for one thing it means the rate quote you get today from lenders might be different from the rate you get a month from now. That’s always the case in a dynamic economy like ours. But it’s even more true given the recent stimulus actions by the government … and the economical impact of those actions.

The question is — when should you refinance your mortgage loan, and when should you avoid refinancing? This question is high on the list of many homeowners, so we will shed some light on the subject.

When Refinancing Makes Sense

There are several rules of thumb you can use to determine if refinancing makes sense for you. Two of the most common are listed below. Keep in mind these are just general rules about when to refinance a mortgage loan, so you should not make your decision based on these “rules” alone. Always do thorough research and seek the advice of a financial professional.

With that being said, here’s a basic guide on when to refinance a home loan, from a financial standpoint:

• When interest rates are low – This is the primary reason that homeowners will turn to mortgage refinancing in the first place. When the rates are low, homeowners in certain situations can refinance to a lower interest rate, and thus reduce their overall monthly mortgage payment.
• To switch from an ARM to a fixed rate mortgage — This is another common reason why people refinance their mortgage loans. If you’ve been watching the news lately, you’ve seen a lot about ARM loans that adjust to such a higher rate the homeowner can no longer afford the payments. So many will people refinance an ARM loan before it reaches the adjustment point.

The goal of both of these strategies is the same … to either (A) lower the interest rate on the loan, or (B) prevent the interest rate from rising through a mortgage adjustment. In both cases, the goal is to pay less money each month on the mortgage payment.

When Not to Refinance

At this point, it’s important to point out that mortgage refinancing is not always a good idea. Here’s another rule of thumb. If the money you pay to refinance the loan (closing costs) exceeds the money you save over the term of the new loan (lower interest rates), then it doesn’t make sense to do the refi. After all, nobody wants to pay more than they save in a financial transaction.

The key here is to do the proper research to find out what you’ll pay, as well as what you’ll save after refinancing. Once you figure those numbers out, you’ll have an easier time answering that common question — when to refinance a mortgage loan.

After all, that’s the whole point of low mortgage rate refinance in the first place — to “swap” your mortgage for one with a lower interest rate, and this save some money.

But not so fast! Sure, you can save money by refinancing to a lower rate … but only if the numbers work out for you. In other words, the money you save through the low mortgage rate refinance process must be greater than what you spend on the refi (closing costs). If your closing costs outweigh your combined savings over the length of the new loan, then it low mortgage rate refinance is NOT a wise financial move.

However, if the money you save over the life of the new mortgage loan far exceeds the money you pay to refinance (closing costs), then a low mortgage rate refinance is probably a smart move.

Here’s an article on our main website that will help:
When to Refinance … And When Not To

At the beginning of this month, for example, the averate interest rate for a 30-year fixed-rate mortgage was around 5.6% … down nearly a point from a year ago. If somebody were paying 7% on their mortgage and refinanced to this lower rate, they could stand to save a lot of money in interest (especially if they were early on in their mortgage and had a lot of payments left).

Should you pursue a low mortgage rate refinance right now? Maybe. Only you can answer that question for yourself. For starters, you might want to use the mortgage refinance calculator on our Resources page. See how much you might save by refinancing to a hypothetically lower rate. Next, get some quotes from lenders to see what kind of rate you might qualify for.

If the numbers work out in your favor, and you stand to save a lot of money, then a low mortgage rate refinance might be just the thing.

Good luck.

Alas, that is not the case. I still get offers to refinance my mortgage with terms that just don’t make financial sense in today’s market. Hidden costs? Probably. Special qualifying conditions? You bet. But the problem is, many of these stipulations are not mentioned up front … if they’re mentioned at all.

I’m glad somebody else has made it a point to educate the public about mortgage refinance offers that seem too good to be true. Recently, that somebody was Carol Lloyd, a real estate writer with the San Francisco Chronicle. Carol’s recent article is entitled “Mortgage Meltdown,” and it paints a pretty good picture of the current refinance market.

Article excerpt:

A mass-fax with no company name touting a “New Refinance Program” is offering a 1 percent, 30-year fixed loan. The lender didn’t care if I had bad credit, was going through bankruptcy or foreclosure. If I took out a $500,000 loan, my monthly payments would be a mere $1,608! What exactly is going on here? I thought all the extravagant offers dried up along with the subprime loan companies.

Read the full article here

The promotional event has been dubbed “The Great Rate Refi Event,” and it’s available in all of Bank of America’s retail channels — more than 5,000 banks and 2,000 mortgage loan centers nationwide.

According to Floyd Robinson, president of BOA’s Consumer Real Estate and Insurance Services Group:

“Millions of borrowers are feeling the pressure of resetting adjustable rate mortgages, and we now invite them to examine the security of a Bank of America fixed-rate mortgage at attractive pricing … Our Great Rate Refi event will stimulate borrowers, especially those with ARMs about to reset, to consider Bank of America, a lender they can trust.”

Learn more

Of course, the first step to understanding the break-even point of a mortgage refi is to understand the various refinancing costs you’ll encounter.

To help you understand these costs, we have posted a new article to the main website. This article examines the costs associated with a mortgage refi, how much they average, how the affect the break-even point, and more.

Article excerpt:

Contrary to popular belief, a mortgage refi is not always a good idea. Sometimes, a refi will cost more money than it will save you. In such cases, the costs will exceed the amount you save (through lower interest rates), thus making it a bad financial move. So how do you know if a mortgage refi is right for you? By understanding the full cost of refinancing the loan.

Read the full article here:
Mortgage Refi Costs Explained