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Refinancing Your Second Mortgage - Step by Step...

Let's take a close look at whether refinancing makes sense for you in your present situation...

• • •

For some of you out there refinancing your existing second mortgage can be an excellent financial move, and for others of you, it simply doesn’t make sense. In order to determine if it’s right or wrong for you, let’s first take a look at some common reasons why you would do it in the first place:

• In order to combine your first mortgage and second mortgage into one thereby having one easy mortgage payment
• In order to get a better interest rate than the one you’re currently paying
• In order to improve your cash flow by paying out other debts with the refinancing, which in turn will lower your overall monthly payments
• In order to take out equity for other needs (home improvements, business start up, family emergency, divorce, etc)

Once you’ve concluded that it makes financial sense to do so, then you need to answer the following questions:

• How much do you still owe on your home, how much is it worth (appraisers/realtors can help answer this) and how much equity does that leave in the property
• Whether or not you plan to stay in the home for a significant period of time.
• The type of loan you will be able get and it’s terms
• The total cost of the refinance, not just the interest but all of the other costs (legal, appraisals, any payout penalties on the existing mortgage, etc.)
• Your current credit situation (good, bad or ugly)

Once again, the decision to refinance should be based solely on your individual situation and needs. Before signing any papers, you need to own your decision and be both confident and satisfied with it as you're the one who has to pay for it!

Okay, so now that you’ve decided to proceed, follow along with me as I walk you through step by-step instructions that will assist in making the whole process both smoother and easier to understand:

Step One – Make Sense Of It

Make sure that you’ve done what we discussed previously and have determined whether or not refinancing is truly in your best interests financially. Go ahead and run some figures yourself, there are many online mortgage calculators to help you with this. Basically you want to ensure that the math supports your conclusions!

Step Two – Are You Financially Fit?

Make sure that you’re credit is firing on all cylinders. You do this by pulling your credit report, consider your credit report your financial report card and if you want decent rates, then it better be all A’s & B’s. Any mistakes and or errors should be disputed immediately. Any negative information on your report that may be dragging down your credit score, you need to do everything you can to get it fixed ASAP!

Prior to the refinance try to save some money up and put it into your savings account. More than likely there may be closing costs associated with your refinance and being able to show the lender you have the ability to cover them may be required by some lenders. Make sure there are no recent (within last 12 months) NSF’s on any of your accounts (checking, loan payments and mortgages). Most private lenders are not that bothered by such things, but if you’re looking for traditional refinancing, those lenders will be.

Step Three – Do Your Homework?

Go out there and find at least three lenders who will offer you information on how to refinance a second mortgage using their programs. Call or visit if possible, plus these days a lot of the information can also be found online or sent over electronically. Get information in writing on the following, rates, terms, any and all fees and costs associated with the mortgage. .When speaking with these lenders let them know your credit situation up front; there is no pointing hiding this as they will find out all of this in the end anyway. Plus when you’re upfront with them there is less chances of surprises later in terms of rates and fees.

Step Four – Comparison Shop

Use your findings from step three to make comparisons. Choose the lender and products that best meets your needs and desired terms. Don’t be afraid to ask the lender for better terms, the most they can do is say no. In the end if you’re not satisfied with any of the loan offers, repeat step three, do it until you’re happy or you’ve concluded that this is as good as it’s going to get. During this process don’t be afraid to ask questions, this is the only shot you’re going to have to do so!

Step Five – If Satisfied, Pass Go & Collect $200...

Before signing on the dotted line, take time to look over the terms of your refinance once more, above all make sure that you will be able to make the required payments and find out exactly what will happen if you suddenly can't. At this stage you may also want to consult a professional (lawyer, accountant) or talk to a relative or friend who has experience with such matters in order to get a second opinion.

Just keep one thing in mind here if you're credit is less than perfect and the interest rate you're being is offered is higher, don't be surprised if you hear something like "I would never pay that sort of interest rate". This is fairly common, they're just looking out for you and offering their opinion, ultimately in the end what you're being offered is based on your credit not theirs. If you've shopped around and this is the best you can get and overall it makes financial sense to take it plus the terms and conditions are not onerous, then sign on the dotted line and begin enjoying the benefits of your refinance.

About the Author:

Kam Brar is a licensed mortgage broker and has been directly involved in the lending industry over the past 10 years, bringing with him a wealth of knowledge and experience. His particular specialty throughout his career has been working with "challenge" customers, where it takes creative financing (and sometimes private loans) to accomplish their goals.

His role with ShangriLoan is that of a consultant and mortgage industry liaison.



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