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Protect yourself when refinancing online

Refinancing is gaining popularity

Media floods us with ads and low-interest offers, but are they really as good as they sound? A large part of google ads and spam messages delivered by e-mail or posted in on-line discussion boards mention mortgages, loans and refinancing, sporting titles like "bad credit OK", "free quotes", "lowest rates" and so on. When the prevailing interest rates for mortgages are lower than the ones you are currently paying, refinancing a loan sounds like a good idea.

The benefits that refinancing online can bring are:
  • lowering the interest rate, and therefore your monthly payments
  • shortening the term of the loan, and saving on interest payments
  • changing from adjustable to fixed-rate loan, and securing your interest rate
  • increasing your home's equity, and therefore discarding the need to pay PMI

  • However, recent news articles warn readers about fraudulent ads in yellow pages,classifieds, or online advertisements. This article aims to caution those who consider refinancing for certain dangers and issues to be examined before making a refinancing decision.

    Applying for a refinance loan

    A mortgage can be refinanced by several types of lenders, for instance banks, credit unions, mortgage companies. Selecting one of them might prove to be a tough decision, as there are a number of issues to be considered: it's not only the interest rate, but a variety of fees an institution charges and some specific clauses in the agreement. The costs you're most likely to have to pay include application fee, title search, title insurance, lender fees, loan origination fees, prepayment penalty, appraisal fee, transaction fees and others. Hiring an agent might help facilitating the search process, but it will also cost you some additional fees. You should specifically negotiate the kind of refinance loan you're looking for and ask the broker to find the one that suits you best. Some companies also charge for advice and sample quotations. When applying, you will be asked to submit a considerable amount of information that requires special security measures.

    Typically, the Application Form will include fields for:
  • personal data - full names, addresses, Social Security numbers
  • income - source(s) and amount of income
  • assets - information on checking and savings accounts, stocks, retirement plans, other real estate owned
  • debts and obligations - information on financial obligations and outstanding debts
  • credit references - information concerning loans or debts that have been paid, and other references to good credit use
  • property information - specifics on the property.

  • Make sure you've educated yourself on special conditions. For example, the company might leave a door open for further revising of terms, in case of market changes, even after your request for follow up is submitted. Some companies might present certain restrictions for non-residents of their areas. Find out how quoting is usually done in the company you've chosen, in order to avoid doubt: whether you will be required to visit their office or you will receive the information you need by mail, and how is the information authenticated. Checking online sources of information is a good idea, as there are many sites which provide current listings, you can compare the terms and conditions offered by different companies, and find a refinance calculator to help you evaluate the advantages of refinancing online.
    As the interest rate might vary, depending on your financial situation, so do the points, prepayment penalties and closing costs. These should be considered when selecting a lender. Sample quotes can often be found for free on-line, but a detailed one, tailored for your particular case, requires examining your credit score. It's important to know that the credit score is temporarily lowered every time a lender makes an inquiry, so it's best if that doesn't happen too frequently. You should also know that, once you receive your detailed quote, you should act quickly, as the terms may change hourly based on market indexes and bank rates.

    Security issues to be aware of

    If applying online, there is always the possibility that the data you submit might be stolen, even though this is considered highly improbable. Also be aware that many of the refinancing related ads that look so appealing might in reality be deceptive. You might be lured by some exceptionally good terms only to be told that the "special offer" is no longer available but there are other good options that might be of interest to you. Newspaper ads, even when stamped with real-life bank logos, may also turn out to be fraud. If you're asked to supply personal and financial information on the phone to a new company you have just started dealing with, don't. This is not a secure way of submitting information and might lead to serious misuse. Victims of such deceit have been asked to send an advance payment by Western Union, when they supposed they were contacting a financial institution which should have been capable of handling its own money transfers. The institutions targeted are usually small to mid-size, as they are not expected to react quickly or have well-known lending procedures.

    Follow the rules if you decide to play the game

    It's best to choose an on-line broker certified and monitored by your state, so that the administrative office could offer help if problems should arise. Fixed-rate loans are generally prefered to adjustables, as the rates tend to fluctuate and rise unpredictably, whereas people prefer certainty and security when it comes to budgeting. If the terms you're being offered look suspicuously good, look from the company's point of view: there's a reason why they're doing this, so you should be able to calculate the approximate amount of money the company expects to receive from refinancing your loan. If your credit history is good, you can expect a better interest rate, so don't hesitate to negotiate whenever you think you have a good reason to do so. Read carefully every document you sign. Make sure that all the important issues are stipulated, including fees, monthly payments, closing costs, etc. Look for additional information from the people around you, it's best if someone you know and trust can give you advice on institutions that offer refinance loans.

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