Home Loan Refinance 101

While there's a lot to be said about home ownership, let's face it--buying a house is no walk in the park. After finally finishing the exhaustive task of finding a house, a buyer has to deal with real estate agents, appraisers, inspectors, title officers and mounds of paperwork. It's enough to prompt even the most energetic person to stay in bed for a week. And that's exactly why many people end up with a mortgage that doesn't best suit their needs. After spending all of their energy on buying the home, many homebuyers are simply too tired to do their homework before financing the home. Fortunately, for these people, all is not lost. A home loan refinance can fix such past mistakes.

The Financial Fairy Fasade

With its lower rates and potential savings, a home loan refinance might sound like some kind of financial fairy with the ability to cast a magical spell on your future. But when you get right down to it, it's just another loan with which you pay off your existing loan. That means you can just as easily fall victim to the same pitfalls that threatened you the first time around. And considering the number of unscrupulous lenders that have surfaced to take advantage of people experiencing tough times, now more than ever it pays to look before you leap. So rather than look at a home loan refinance as an instant cure for a mortgage mishap, perhaps it would be best to consider it a second chance to find one properly.

One Size Does Not Fit All

There's no definitive answer as to which home loan refinance package is best; it depends on the specific needs of each borrower. In most cases, homeowners are interested in refinancing with a fixed-rate loan, which offers the same low interest rate throughout the entire term and guarantees your monthly payment will never change. Those features are often especially attractive to homeowners with ARMS, or adjustable rate mortgages, who want to abandon roller coaster rates in favor of a more secure ride. That said, there are some cases when refinancing an ARM with another ARM can benefit a borrower, such as when he or she doesn't plan on staying in the house very long. When it comes to refinancing options, one size does not fit all. Talk to your lender or mortgage broker to decide what size fits you best.

Comparing Apples to Oranges

An APR, or Annual Percentage Rate, breakdown is required by law to accompany every quote given by a lender. By making clear the exact amount of interest that will be levied over the life of a loan, the APR is meant to provide homebuyers with the ability to compare one loan to another. However, because there are no defining standards regarding costs that qualify as financing fees, additional charges could drive the total amount higher than the one cited on the APR. So, when comparing home loan refinancing packages, it's a good idea to ask each lender for a good faith estimate of all additional fees associated with the loan.

Lock It In

With interest rates spring-loaded and ready to rise, it's important that you make sure your home loan finance provider locks in the rate you agree on. That way, even if interest rates have skyrocketed by the time you close the deal on your loan, you'll be guaranteed the rate you were originally quoted. On the off-chance that rates will take another nosedive during the typical 30-day period between the origination and closure of your loan, you might want to ask your lender about attaching a float down to your rate lock. With a float down, your initial quote remains locked if rates go up, but the lender agrees to match the going rates should they be lower at the time of closing.