Sometimes refinancing an existing, high-interest mortgage can save homeowners money. You may be able to pay less interest, lower your monthly payments, or convert from an adjustable-rate mortgage to a fixed-rate mortgage. Refinancing is not for everyone, though. Before taking this major financial step, homeowners need to be sure that refinancing is right for them.
Homeowners thinking of refinancing should meet with a housing counseling agency that is certified by the US Department of Housing and Urban Development. These agencies provide free services and help homeowners (and potential home buyers) realistically understand their financing assess and repair credit if necessary. The also advise homeowners about refinancing options.
Housing counseling agencies also combat predatory lending by helping unwary borrowers avoid unreasonably high interest rates and other conditions that can result in loss of equity, increased debt, default, or even foreclosure. Over the past several years, our nation has made tremendous strides in expanding access to capital for previously underserved borrowers. Despite this progress, too many families are suffering today because of a growing number of abusive practices in mortgage lending and financing.
“We cannot overstate the importance of meeting with a housing counseling agency,” says Julie Fagan, HUD’s Connecticut field office director. “This should be the first stop for anyone thinking of purchasing a home or refinancing an existing home loan.”
To help you understand if refinancing is right for you, here are some helpful tips:
* Meet with a HUD-approved, nonprofit housing counselor. This is a free service. To contact an agency near you, call 800-569-4287. This is an automated line that requests that you enter your ZIP code to get referrals to a local housing counseling agency.
* Evaluate how long you plan to live in your home to determine if refinancing makes financial sense. The total savings in the monthly mortgage may be less than the closing costs to refinance, if you do not stay in your home long.
* Compare terms (interest rate, points, and fees) between at least three reputable lenders.
* Beware of unsolicited mail offers. If an offer sounds too good to be true, it probably is.
* It is rarely a good idea to refinance unsecured debt (credit card debt) into a new first mortgage. You end up paying for those credit card purchases over the next thirty years at a great expense!
* Do not let anyone persuade you to make a false statement on your loan application, such as overstating your income.
* Do not sign any blank documents or a document containing blanks.
* Do not let anyone persuade you to borrow more money than you know you can afford to repay.
* Don’t sign anything you don’t understand. Watch out for high fees, prepayment penalties, or other unfavorable terms. Ask for help from an attorney or a HUD-approved housing counseling agency if there is something you do not fully understand.
* Get everything in writing. Sometimes verbal promises are made by lenders, yet the costs or loans terms presented at the closing are not what you agreed to.
* If you lock in your interest rate, make sure you get written proof. If you choose not to lock in the rate, then the rate is “floating,” and the rate is set just before the closing. During a time of increasing interest rates, not locking in the rate can lead to a higher interest rate and therefore a more expensive loan.
* Find out what protections are available for borrowers who fall behind on their mortgage. HUD/FHA loans have Loss Mitigation programs that allow borrowers to work-out repayments over time with the lender in the event of a mortgage delinquency. In fact, more than 200 families in Connecticut have been able to stay in their homes and avoid foreclosure this year because of the HUD/FHA Loss Mitigation program.
Remember, a good start is to first meet with a HUD-certified housing counseling agency. To find the nearest agency, call 800-569-4287 or visit www.hud.gov.