The Ultimate Guide to Refinancing Your Mortgage
4 min read
Refinancing offers many benefits, from getting a better interest rate and loan term, or even decreasing your monthly house payment amount. But the refinanced loan won’t always be beneficial if it doesn’t align with your goals.
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Shop Around
From lower rates to longer terms, mortgage refinancing is a smart financial decision that can unlock home equity, reduce interest rates, and help you refinance a loan that works better with recent changes to your financial situation, such as job loss or payment delinquency. To take advantage of the benefits of mortgage refinancing, it’s important to comparison shop for lenders, and examine mortgage rates, loan fees and refinancing costs. Other refinancing costs – such as mortgage title insurance and appraisal fees, which typically add up to between 2 and 6 per cent of your new loan principal – are typically paid by you upfront. Before you refinance to save money on monthly payments, determine your breakeven timeframe – how long it will take for those costs to be covered by the savings. For your best shot at the lowest rates, apply with three or five lenders simultaneously and therefore, as soon as possible in the process of refinancing your mortgage. With credit scoring inquiries, all in the same week count as a single enquiry and there’s really no penalty for shopping among lenders.
Know Your Options
Ultimately, which refinance you choose, or if refinancing makes financial sense at all, may come down to your financial goals. If your goal is to reduce your monthly payment, then a mortgage calculator will help you measure how much savings there are. Just remember all the costs associated with refinancing – the origination fees as well as interest payments – and generally reducing your payments by 1 per cent or more each month will offset your cost of refinancing. Refinancing, on the other hand, changes the interest rate and term of an existing mortgage (applying the first payment to the lender after refinancing). You may be able to lower your monthly payments, for example, or convert an adjustable-rate loan to a fixed-rate one – or do something else entirely, such as pay off a lump sum early or move from biweekly payments to monthly ones.
Know Your Budget
While you’ll want to understand these fees, prepare for them in your budget, and keep them in mind – refinancing can sometimes come with associated costs. Freddie Mac, a mortgage lender, lists common fees on refinancing: Appraisal $325 Credit report $40 Title services $355 Loan origination/administration $1,040 Survey $375 In sum, refinancing can save a lot of money if you play your cards right and pay attention to the details. Think about whether you will be keeping your home for a very long time before you refinance – with refinancing, the loan term can change and affect the payments and possible savings over time; switching to a 15-year loan from a 30-year might save you some money but you’ll pay more each month and spend more in interest over time in the long run. Refinancing can be a great financial move, if you think through the decisions and negotiate in your best interest. While you still look for better options, carry your goals with you through each step of shopping and negotiation.
Know Your Credit
There are some advantages in low interest rate and cash access when refinancing some loans, but also some drawbacks that you have to pay some fees , and compound your loan period. So in your situation, you should think both of the two sides and make a wise decision for yourself. Credit is a major factor in whether a lender decides to give you a mortgage refinance loan, so as soon as you apply, the lender performs a hard check on your credit history, and your score could plummet by five to 10 points. To minimise your score’s ding, eschew big-ticket buys and credit card applications during a mortgage refinance application, lest balances increase and your percentage of available credit you’re using go up. Pay down your debt, and your credit-utilisation ratio – until you reach a point where you soar.
Know Your Lender
Refinancing replaces the first mortgage loan with a new one by making a new mortgage loan mortgage commitments and financial pressure, while also involving the closing costs including appraisal of home, credit report and title search fees. In a normal practice if you need money for some additional purpose like home renovation, higher education charges, or own a house rather than renting then it’s essential that you do comparitive shopping of lenders first to receive a better mortgage interest rate and an unbeatable loan agreement. After all, your mortgage lender must resolve any issues that arise, underwrite the loan, and accept your mortgage commitment. And it’s the lender’s dime that gets picked up if you stop paying the mortgage. Still, your lender might pass on some day-to-day administration of your mortgage, such as collecting your payments and monitoring your balances, to a ‘servicer’. Refinancing can be a great move in homeownership and can unlock substantial amounts of home equity, reduce interest costs, lower the monthly mortgage payments and even change the term of a loan to fit your lifestyle. Don’t let the opportunity pass you by to get a better loan – there are many advantages to refinancing. But just as refinancing can be a great move, it can also lead to and increase the existing problems if done hastily or without enough consideration of the pros and cons at hand.
