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What to Know Before Refinancing Your Home Mortgage

Information is power. Before refinancing your home, make sure you are armed with enough information to make good decisions and get the best deal.

Know what banks are requiring from you. Before starting the paperwork, go online and determine what information a lender is going to need from you in order to refinance your mortgage and start making a file and a list. That way, you're prepared and don't waste time or money.

Find out how much your home is worth. Home property values have plummeted across the nation. If you haven't had your home assessed in the past couple of years, do so early in the process so you know whether you have any equity in the home or whether you are "under water," meaning you owe more on the loan than the home is worth. Knowing this information will keep you from being taken by surprise later and help you make the right decision in regards to your mortgage.

Check your credit. Request a copy of your credit report and credit history before beginning the refinancing process. This will prevent you from being surprised and give you a chance to clear up any problems. While you may not think you have a credit problem because you have little debt and pay all your bills on time, frequently borrowers with little debt can wind up with a lower score because they have less of a record of credit.

Research the rates and the costs associated with refinancing. While interest rates on home mortgages are now at record lows, the closing costs on the mortgage can be high enough to dissuade you. Some banks are actually raising their closing costs in order to control the number of people wanting to refinance and reduce the number of loans they have to process. Refinancing costs such as closing costs, inspection fees, application fees and other costs can equal 4-6 percent of the principal on the loan.

Allow plenty of time. With interest rates this low, the number of people wanting to refinance has increased greatly. Consequently, the amount of time it takes for the lenders to process mortgage applications has increased greatly. It used to take 30 days. In some parts of the country, it has increased up to 45-90 days.

If you're interested in refinancing, be sure to go online and research all of your options. Not only should you research interests, fees and costs but be sure to also review what other consumers said about doing business with the lenders. Armed with information from a variety of lenders, you will be in a position to negotiate to get the best possible terms.

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