Despite the common misconception, mortgage refinancing requires time, effort and careful analysis. You have to ensure that you will get the best possible deal, especially in terms of affordability. Your goal is to save money while making smaller payments on your loan. Find out how to achieve this and to get even more benefits.

1. Make sure your LTV is low.

LTV refers to loan-to-value ratio and shows the new mortgage principal as a percentage of the value of your property. Most lenders require that you have LTV of at least 80% for refinancing. This means that you need to have equity of at least 20% in your property. Lower LTV will not only boost your chances of getting approved, but will help you secure lower interest rate. Lenders are willing to make the loan cheaper when the principal amount is smaller due to the lower risk which they assume.

2. Avoid loans with no closing costs.

There is no such thing as no-cost refinancing. There is a cost for the lender and they will pass it on to you. In case of no-cost deals, the cost is typically added to the loan balance. In this case, you have to pay interest on it throughout the term of the loan. Alternatively, the interest rate is higher and this will also result in additional costs for you. That is why it makes sense for you to calculate the cost of getting a new home loan and to ensure that you have sufficient cash to pay it at the time of closing of the deal.

3. Consider carefully cash-out refinancing.

Currently, the mortgage rates have gone up, but they are still close to their historically low level. This makes it quite tempting to take out extra cash when you refinance. However, if you do this, you have to be disciplined enough to make the higher payments every month for the whole term of the loan. Experts recommend that you avoid this option given that the economy has still not stabilized fully. In fact, you may want to consider putting down extra cash on the table in order to reduce the new loan amount.

4. Go for a fixed-rate mortgage.

This is certainly the more cost-efficient option in case of mortgage refinancing, given that interest rates are expected to increase considerably by the end of 2015. Even if you plan to move out of the house, an adjustable-rate loan will still be highly risky given that you already own considerable equity in the property. It makes perfect sense to lock a rate which is still quite low.

5. Choose a shorter term.

This is a guarantee that the new mortgage loan that you take out will be cheaper. You will just have to incur extra expenses if you get a new term of 30 years. Experts recommend that you go for a term lower than 25 years. That way, you will save money without having to face much higher monthly payments.

6. Prepare a plan for early repayment.

This is an effective strategy for saving on refinancing. If you make slightly higher payments every month or use extra sources of income for repaying the loan more quickly, you will save considerably on interest. You just need an effective plan and discipline to stick to it.

You are now ready to make the most out of mortgage refinancing.

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