You may need to Refinance

As interest rates continue to creep upward, many buyers that purchased their homes in recent years with adjustable-rate mortgages (ARMs) are now struggling with increased monthly payments. And, with no real end yet in sight, many are looking for a way out. Some have attempted to sell their property, but that option typically isn't going at all well in today's market. For others, the best alternative seems to be to refinance their home with a fixed-rate mortgage.

Obviously, changing to a fixed-rate loan will stop the cycle of unpredictability and provide you with a payment that will be remain consistent month after month. But, while you may think that this kind of an option is something you'd want to jump at, don't jump just yet. Make absolutely sure beforehand that you're making the right decision before signing any new financing forms. During this time of economic uncertainty (or any other time, for that matter), any major money decisions should be entered into only after careful deliberation.

First, specifically identify what you want to gain from your mortgage refinancing. Is your current interest rate the largest issue of concern? Or is the major problem that a new interest rate has kicked up your monthly payments? If you can pay similar payments to what you have now, you may be able to refinance to a lower interest rate for a shorter-term loan, where more of your payment will be put toward the principal of the loan. However, if you need a lower monthly payment, you might want to look for a long-term loan.

Find out just what expenses you'll have to pay in order to get your mortgage refinanced. There are often a new set of fees and finance charges, and these could be high – even prohibitively so. If you don't have the cash on hand to pay these fees, you're going to have to roll them into your refinance loan (if the lender will allow you to do so). That will increase the loan's monthly payments and should be taken into consideration.

Don't go with the first lender that seems to have a great offer. Even though lending has slowed along with the rest of the economy, there are still a number of lenders out there making offers, and they all have their various pros and cons. Make a list of those offers and pick the top few that are the most attractive to you. Then, decide which of those lenders will accept you and offer you that deal (or one as similar to it as your credit situation will allow). Contact your top choices and see if they'll pre-approve you for a mortgage refinance. Of course, the rest of your financial situation will come into play at this point. The better your credit history, the more chance you'll have of being pre-approved for an offer that you like.

For some homeowners, a mortgage refinance could be the way out of an increasingly pressurized monthly trap brought about by their adjustable-rate mortgage, but only if it's entered into carefully. Be sure to check, double- and even triple-check your situation carefully to ensure that you'll be doing what's best for you.

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