A recession can be a great time to refinance a mortgage. The fact is there are always going to be a lot of reasons to refinance, including getting better rates, better terms, or to pull some of your equity out of your home. However, refinances are not free, at least not usually, so before you refinance, you need to understand some of the things you should consider. The following is a look at how to get your home refinanced quickly, and how to make sure that refinancing now is the best decision for you:

Before you go through the process of refinancing, ask yourself the following questions to be sure that it is the right time, and you are in the right position to refinance your home:

What kind of mortgage do you have?

One of the best reasons to refinance your mortgage is to get out of a bad mortgage loan and into a better one. If you have a fixed rate mortgage at 4.5% and only have 9 years left on the loan, it would be stupid to refinance it, even during a recession when rates are low. However, if you have an adjustable rate mortgage and you are having trouble meeting your mortgage payment, it would be wise to lock in a low rate before rates rise. It would be smart to convert your loan from an ARM to a fixed rate loan. If you have an interest only loan, and you can afford a larger monthly payment, it is smart to refinance so that you start paying down the loan.

Look at your current mortgage rates and type, and then take a look at what other mortgage rates and types are doing or what they have to offer before they decide to refinance your mortgage. It never makes sense to refinance to a higher rate or longer term if you can help it.

How long do you plan to be in your home?

Refinances cost money, and it usually will take a certain number of months before you recoup the amount of money you spent to secure a new loan. So, if you are considering a refinance, first look at how long you plan to be in your home, and whether or not the cost is justified based on that time frame.

Before you decide to refinance your mortgage, you need to decide how long you plan to be in the home, and whether or not a new long term commitment, in the form of a new loan makes sense. The basic rule of thumb is that if you plan to be there for 5 years or more, refinance. If you aren't you need to look at some specifics for whether or not it is wise. If it saves you a huge chunk of money, or helps you get money you need out, it may be worth it even if you won't be there long. However, most experts agree that if you plan on being in your home for less than 5 years you are probably better off staying with an adjustable rate mortgage, or whatever current mortgage you have.


If you are only going to be in a home for a few years, it might be wise to refinance to an ARM with a long adjustment period and a low introductory rate. This could mean lower payments, and time to sell before your rate adjusts.

Is your home holding value, or losing it?

Sometimes during a recession people want to refinance their home in order to help make the monthly payment more affordable, however if your home is not holding value, it could cost you far more to refinance it, especially if you get stuck with PMI, or other insurances. Also, if you refinance to pull money out, and then the home loses value, you could end up upside down in your mortgage, which is never an appealing option.

Are you able to afford your monthly payment amount?

If you are having trouble affording your monthly mortgage payment then refinancing, especially during a recession can be a big benefit. In many cases, a refinance can help you to lower your monthly payment. It can be done by refinancing to a lower rate, or for a longer term. Often times your lender will be willing to wrap the cost of the refinance into your loan so that you do not have any upfront costs for the refinance. If the choice is to increase the loan amount some to reduce the monthly payment to something you can afford, or lose your home to foreclosure, this is a good option. However, just remember that getting in more debt to help yourself out financially is usually not a good idea. So, consider carefully. A better solution may be to sell and buy something less expensive.

When considering a refinance, tell your lender that you really need a reduced monthly payment but do not want to owe more, or pay longer, they may be able to reduce your rate some, and help you through your financial difficulty with a solution that works for both of you. Most lenders are not going to want to give you lower rates if they can help it, as that is one of the places they make money. However, if you show them you can't afford your mortgage, but could at a lower rate, they may be more accommodating.

If you are having trouble making your mortgage, you may want to consider refinancing to an interest only loan, which reduces the monthly amount significantly. Of course you are not actually paying down your mortgage at all, but it can be a temporary fix to a financial problem.

Where are rates at?

If you refinance when rates are high, you may end up paying more in the long run. Some people refinance in order to get out of an ARM and into a fixed rate mortgage. However, if they would have waited a few months, and paid a higher monthly payment until rates went down, they could have saved significantly. So, before refinancing, consider where rates are at. If rates are significantly lower than the current rate you have on your home mortgage, then it would be worth the refinance.

Can you afford a refinance?

Every lender offers different refinance options, and all come at a different price. For some you get a low cost for closing but you pay higher interest. For others, you pay fees, and then get the lowest rates possible. In other cases you can buy rates down, etc. One thing you need to decide is if you can afford to refinance. The lender makes their money off the points they charge and taking on more points in the beginning may mean you will get a better interest rate and it will help you save money in the end. Some lenders require PMI, others will add the cost of a refinance to the loan amount owed. You really need to do your homework and find out how much the refinance is actually costing you. Then ask yourself if you are really willing to pay that much to refinance your loan.

For some people refinancing their mortgage reduces their savings, or only temporarily saves money. You may find that you have lower payments, but in the life of the loan you pay for more. Consider all of this, especially if it is a home you plan to be in long term.

How to refinance your home:

Start by answering the above questions this will help you know what your goals are in a refinance so that you can meet them, and not make a silly mistake. You should know how much money you need to save on your monthly mortgage rates, why you need to get cash out of your mortgage, or why you want to switch mortgage types. Once you have answered these questions for yourself, it is time to talk to your lender.

When you speak with a lender about home refinancing you do not want to go in blind. As bad as it sounds, lenders can be sharks, and can be looking to take advantage of your ignorance. So, make sure you work with a reputable lender, and double check everything they say against what you actually get to ensure you are not overpaying.

Once you have found a reputable lender, go to them and let them know you want to refinance, and why. They are going to have you fill out some forms, and apply to refinance by submitting your financials. They will pull your credit report, and will evaluate your worthiness of a refinance, and the kind of rates you can qualify for based on your bank statements, pay stubs, DTI, and credit score. If you are refinancing to keep yourself from getting into mortgage payment trouble, or because you already are having a hard time meeting your monthly payment obligations, this should be disclosed to the lender, as they will need to take it into consideration when providing you with a new loan.

Once your lender has reviewed your application they will come back to you with a rate they can give you and a loan type. They should take the time to explain the loan to you, both the pros and the cons of it. Then they should give you a chance to decide if this is the loan you want.

If you decide that the loan is going to work for you, your lender will get permission from you to pay off your old note, and they will close the loan. The new lender will pay off your old loan, and new documents will be drawn for your new loan. These are signed, and the new loan will be in place, including the new rate in the matter of a few days. Typically you have a few days to rescind your decision should you choose, but after that time is up, your loan is in place.

When you are looking to refinance, check into alternative solutions such as whether or not you qualify for a government subsidized loans. Almost 30 million Americans qualify for some type of government subsidized loan like a VA Loan or FHA Streamline refinance. These can save time and money, but your lender may not tell you about them, so ask!

If you are going to refinance during a recession, remember that a traditional fixed rate mortgage is going to be the best option long term, giving you a dependable monthly payment amount, and lower payments when the recession ends then other loan options. Also remember that everyone's situation is different, so do not just take someone's word for it, review for yourself whether or not you should refinance.