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6 Ways To Shop For A Refinance

While the essential elements of shopping for a mortgage are the same for a purchase or refinance, the refinancing process usually starts with a decision to either improve your cash flow or change your debt profile, says Russ Anderson, a centralized sales executive with Bank of America in Los Angeles. He says you should determine your goal for refinancing before you meet with a mortgage professional.

Once you've decided whether you want to reduce your mortgage payments or pay off your loan faster, you can begin shopping for a lender and a loan.

"The average consumer shops for a refinance like they're shopping for a flat-screen TV," says Barry Habib, chief market strategist for Residential Finance Corp. in Columbus, Ohio. Everyone's price conscious, he says, but not everyone does their homework to determine which product best suits their short and long-term goals.

6 steps to refinance shopping

No. 1: Start online. Deborah Ames Naylor, executive vice president of Pentagon Federal Credit Union in Alexandria, Va., recommends starting with a mortgage payment calculator that estimates your monthly payments at various loan terms.

"A shorter term loan will have a lower interest rate than a 30-year fixed-rate loan, but the payment will be higher because you're paying it off faster," says Naylor. "It's important to decide what payment you're comfortable making before you see a lender, because that payment could be much less than the payment you qualify for."

No. 2: Loan term. Habib says the loan term you choose needs to be made in the context of your other financial obligations and plans.

"If you have $30,000 in credit card debt and no savings for college, you may want to go for a 30-year loan to keep the payments as low as possible," says Habib. "Someone else may want a shorter term to build equity faster while another borrower might want a longer loan so they can keep their tax deduction as long as possible."

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