Five Factors for Refinancing

Knowledge is power, especially when it comes to a mortgage refinance. The more details you know about your current mortgage, the easier it will be for you to decide if it's the right time to refinance that loan.

Why is it that the simple things in life give us the greatest pleasure? Perhaps it's because complicated matters-like a home mortgage refinance-can be so time-consuming. There seems to be an endless number of details you need to be aware of when refinancing one. Here's a checklist of five big factors that you should know before you begin searching for the right refinance mortgage package.

1. Find out your loan balance

This is a relatively simple matter. If you're not tracking your current mortgage payments on your own financial software, contact your lender through its 800 number, or online to find out the balance. The loan amount will help you as you're pricing monthly payment amounts on new mortgages.

2. Locate your rate

The next order of business-and perhaps the most crucial one-is your interest rate. It will be listed on your loan documents, or you can call your lender. This number is critical. You're going to need this for comparisons with rates on a new mortgage.

3. What's your term?

Knowing your loan term is also critical. You have to know whether your mortgage rate is fixed or adjustable. If yours is the latter, you may be facing a rate increase in coming months, which might instill a sense of urgency. If your rate is fixed, carefully consider the peace of mind that comes with knowing that your rate will never increase before you initiate a refinance.

4. Prepayment penalties

Lenders tack on prepayment penalties to prevent borrowers from refinancing a loan. These usually include a set fee or a percentage payment that's levied if the loan is rewritten. If you have one, you'll need to do some number-crunching to determine if a refinance would be truly cost-effective. From this point forward, you should always try to avoid mortgages with prepayment penalties.

5. Evaluate your equity

The recent plunge in home values may have a profound impact on your loan. The less equity you have in your home, the higher the potential rate will be on your mortgage refinance. To determine how much equity you have, you can either have a professional appraisal done, or ask a realtor to help you determine your home's current value.

Many factors can influence a refinance decision, and you'll need to evaluate them all. They'll determine which type of mortgage loan you qualify for, and whether or not it will be cost-effective in the long run. There are many variables to consider, which isn't surprising considering how big a decision refinancing can be. Do your best to learn everything you can about your current mortgage. The more you know, the easier your refinance decision will be.