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By Brooke lowe

Ways of changing a fixed rate mortgage

There are different reasons why homeowners decide to make a refinancing decision. As compared to homeowners who have an adjustable rate mortgage, those who have a fixed rate loan may have an advantage when they want to get another product in exchange for the loan. According to lenders, good credit scores are a necessity and usually also a down payment of 20 percent for fixed rate loans. Borrowers who already have fixed rate loans have to adhere to strict lending criteria when they apply for the loan for the first time. Borrowers can easily refinance even when home values drop even more, when their credit scores drop drastically or when they are dealing with job loss.

Ways of refinancing

1. Gather all your loan information documents and review the terms of the loan that you currently have. You should write down the terms and interest rate of the loan. You should then ensure the loan does not have a prepayment penalty clause by checking its terms. Variable rate loans usually attract prepayment penalties but these penalties do appear on a few fixed rate products. Homeowners who embark on refinancing before the expiry of a specified amount of time pay fines on these products.

2. Compile all income information such as the interest that you earn on your bank accounts, W-2s, tax returns for the previous year, and 1099 statements. You should gather all information about your debts such as car payments, alimony and child support payments. You should then write down all your current gross income before subtracting all monthly debts. Next, you should confirm that your mortgage payments are approximately 30 percent or less of your current disposable monthly income by dividing by three.

3. Write down the amounts you still owe on your mortgage. You should make a rough calculation of the market value that the home currently has. You should then divide the amount that you owe on the property by the market value that it currently has. You should write down the result, which is the ratio of the loan-to-value that relates to the mortgage application.

4. Call your current mortgage lender and tell the loan specialist about your intention to change the loan product. You should discuss the various options that are available and make comparisons between the available interest rates and the rate that is currently associated with your mortgage. You should then carefully read over the terms of the loan before consulting a real estate attorney in case you are not sure about the terms that the paperwork specifies or the terminology that is used. You should try to find better deals from other lenders by shopping around. You should then choose the most suitable product for your circumstances.

5. Calculate the potential savings that you have made from the change in mortgage. You should write down the period it will take for you to break even after you have paid closing costs that are associated with your loan. You should ensure that all the documentation states very clearly that the fixed rate loan is the new proposed loan.

6. Make an application for the loan and ensure that any of your requests about work history or credit scores are clarified. Read the loan documents thoroughly before signing them.

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