Refinancing a home is a big decision that has long reaching consequences financially, legally, and with a homeowner’s taxes. It is not a decision that should be made easily or on a whim. This consideration needs a lot of time, research, and thoughtfulness in order to make a well-educated choice. There are a variety of things to decide from including what kinds of refinance loans to consider, which lender to choose, the time and hassle of the process, and the overall cost or savings involved.

As the name implies, a fixed rate mortgage is one in which the interest rate remains constant throughout the duration of the loan period. This is an especially favorable type of loan when the homeowner has credit which is sufficient enough to lock in a low interest rate. ARMs are mortgages where the interest rate varies during the course of the loan period. The interest rate is usually tied to an index such as the prime index and is subject to rises and falls in accordance with this index. This is considered a riskier type of loan and is therefore often offered to homeowners who have less favorable credit scores.

Although ARMs are considered somewhat risky there is usually a certain degree of protection written into the loan agreement. This may come in the form of a clause which limits the amount the interest rate can increase, in terms of percentage points, over a fixed period of time. This can protect the homeowner from sharp increases in the interest rates which would otherwise considerably raise the amount of their monthly payments.

When the homeowner’s credit scores improve, considering re-financing is warranted. Lenders are in the business of making money and are more likely to offer favorable rates to those with good credit than they are to offer these rates to those with poor credit. As a result those with poor credit are likely to be offered terms such as high interest rates or adjustable rate mortgages. Homeowners who are dealing with these circumstances may investigate re-financing as their credit improves. The good thing about credit scores is mistakes and blemishes are eventually erased from the record. As a result, homeowners who make an honest effort to repair their credit by making payments in a timely fashion may find themselves in a position of improved credit in the future.

When credit scores are higher, lenders are willing to offer lower interest rates. For this reason homeowners should consider the option or re-financing when their credit score begins to show marked improvement. During this process the homeowner can determine whether or not re-financing under these conditions is worthwhile.

Considering the fees associated with refinancing will also help a homeowner make a good decision. Some of the high costs of refinancing are the same closing costs as with the original mortgage. Application fees, appraisals, property taxes, and miscellaneous lender fees will all have to be paid again with a refinance. If this turns out to be a financial problem for the homeowner they should reconsider refinancing.

Finally a homeowner should determine if the hassle and stress of a refinance is worth it. It is a lot of work, time, and stress. Between researching and contacting lenders that can eat up hours of time. Homeowners need to be sure the savings is worth investing that time.

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