If you bought your home when interest rate [1]s were high, now may be a good time to consider refinancing. If you qualify, you can get a new mortgage with a much lower interest rate. Over time, this will save you thousands of dollars in mortgage payments. Here's your step-by-step guide to mortgage refinance [2]:
1. Find out if refinancing is right for you. If you've bought your house recently, interest makes up a large portion of your monthly house payments. A lower interest rate will save you a lot of money. However, if you're close to paying off your mortgage, a lower rate won't make a huge difference. The costs of refinancing will outweigh the benefits
2. Check your credit report [3] for mistakes. Even a small error an significantly lower your credit score, making it difficult and expensive to borrow money. You can get a free copy of your report from the three major credit bureaus from www.annualcreditreport.com [4].
3. Raise your credit score as much as you can. The higher the credit score, the lower the interest you'll have to pay. The easiest way to do this is to pay off some of your debts. Creditors are reluctant to lend money to people who are already close to their credit line limit.
4. Find out the value of your house by looking at similar properties that have been bought in your area. If the value of your house has fallen significantly since you've bought it, you may find yourself in negative equity.
5. Find out who owns and guarantees your mortgage. If it's Fannie Mae or Freddie Mac, you're in luck. The new government refinancing rules let you borrow up to 125% of the value of your home, making it possible to refinance even if you have negative equity.
6. Shop around for a bank that will give you the best rate on a new mortgage. Rates vary dramatically. The more you shop around, the more money you'll save.