3 Tips for Mortgage Refinancing in a Recession

Mortgage refinancing in a recession works a little bit differently than refinancing in a strong economy. If you have good credit, you are in a position of strength during a recession. The best thing you can do is recognize that your business is very important. Shop around for the best deal and find the lender that has the best rates, terms and service.

1. Shop For the Best Deal

The first thing that you'll want to do is shop around for the best deal on a refinance. Visit a few of your local banks and ask them what they can offer you. In addition to that, visit a few different national lenders online. Many times, they will put their best deals on the front page and they are very easy for you to find. Even if you do not want to business with online lenders, shop around and show the information to the lender you want to use.

2. Find a Low Interest Rate

Your number one objective in shopping around should be to find the lowest interest rate. During a recession, odds are that the market interest rate is lower than normal. The federal reserve lowers the rate to stimulate the economy. Be sure to refinance if your payment is significantly lower and the rate is lower. Ask lenders for a payment schedule so that you can properly assess the payment reduction.

A good rule of thumb is, if you are refinancing from a fixed rate-be sure to refinance to another fixed rate. The new rate should yield a payment that is at least 5% lower than the original payment. If you are refinancing from an adjustable rate to a fixed rate, pick a rate that is at least 2 percentage points cheaper than the original rate.

3. Compare Closing Costs

Another big thing to compare with a refinance is the closing costs. The closing costs can represent a large investment on your part. Therefore, you should make sure that you get the best deal. When you are shopping around, the lenders will provide you with a good faith estimate that has all of the closing costs and other fees that you will have to pay. Once you have several of these estimates, you will get a good idea of what you should be paying.

If you find one lender that has a lower interest rate and high closing costs, go talk to them with your estimates. Tell them that you would like to do business with them, however, you believe they are charging you a little more than they should for closing costs. Pull out a few of the estimates that you have received and show them the numbers. Let them know that if they do not lower their closing costs, you will go with someone else. In many cases, they will do what they can to earn your business.

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