Refinancing FHA Loan

Any time interest rates drop, many property owners make hasty decisions, to refinance their mortgage loan, sometimes without pausing to contemplate whether undertaking a refinance is actually a good idea, or even if the idea would make financial sense.

The fact is that, home owners can certainly be very easily lured by the thought of a more affordable mortgage interest rate; however, the actual rates on their own are merely a small portion of the even bigger picture.

Carrying out brand new mortgage loans each and every time rates drop does not make good financial sense, a general rule of thumb is a drop of 1.5 to 2 points.

However with the current recession, and the state the mortgage industry currently is in rates are very low, and should be seriously considered.

What exactly is a FHA Refinance?

A FHA (Federal Housing Administration) Mortgage Refinance is a new loan taken out by a individual(s) to pay away the original loan for many different purposes.

Advantages:

• Lower interest rate and costs
• Lower payments
• Pay off high interest debts
• Switch from adjustable-rate to fixed-rate to reduce risk.
• Improve cash flow
• Improving Credit

Disadvantages:

• Early Payment Penalties
• Closing Costs
• Fees
• Possibly Paying of Points (Premiums)

Types:

• No-Closing Cost – Bear in mind that financial institutions are in this business of making money. If the loan company is not making profits by obtaining upfront costs, these expenses are either rolled into the loan or paid through a higher-than-market interest rate.
• Cash-Out – This type wont lower payments or shorten life of the loan, but can be used for paying off debt or home improvements as long as borrower has good credit and sufficient equity.

If contemplating this type of loan do your homework, and talk to locally qualified people you trust.

5 Mistakes To Avoid:

• Refinancing To Often – It is not financially sound to refinance every time rates fall think costs.
• No research – Shop around mortgage companies are not created equal.
• Not Calculating Break-Even Point – Divide your closing cost by your monthly savings which will = break even point.
• Not Locking In Rate – Rates change from day to day not locking in can prove costly.
• Refinancing To Be Refinancing – Just because rates are low does not mean its wise to refinance. Look at your situation first, if only a few years left on mortgage it is not wise to refinance, if your only going to be in your home a short while, it is not wise to refinance, do the research first.

Do not rush into anything until you have all the information at hand and always ask for a (GFE) Good Faith Estimate (required by law) prior to any final decisions.

A Good Faith Estimate is just what it states, an estimate of charges, that could be brought against you upon closing. Although this would just be ball park figures, it still gives you an excellent base, from which to make your determination of whether to proceed further.

However, it does not guarantee your interest rate will not change, so if you do decide to pursue make sure you have your interest rate locked in, as they change from day to day.

Akikta C has been doing research and article publishing online in areas of personal interest for several years, on such topics as Finance, Health & Fitness, Real Estate, and Home & Garden Projects. You are welcome to visit his latest project on FHA Loans at http://www.refinancingfhaloan.org/ which helps people find information on such topics as FHA Closing Costs when they are looking for what costs will be involved in a FHA Refinance. Copyright: you may freely republish this article, provided the text, author credit, the active links and this copyright notice remain intact.

Author: Akikta C
Article Source: EzineArticles.com
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