Refinancing your home should only be attempted if you can see a savings in your interest costs or monthly payments. That means you need to consider your current mortgage situation, future housing plans, and potential financing options before committing to refi. Only you can determine if refinancing is the best choice.
Evaluate Your Current Mortgage
Before you jump into the refinancing process, check to see how much interest is left to pay on your mortgage. With amortization, the majority of interest on your mortgage is paid at the beginning of the loan term. So to save the most money, refinance early on in your loan period.
Adjustable rate mortgages are also prime candidates for refinancing when the introductory low rate periods are over. Even with caps, borrowers can find their monthly payments doubling or years added to their loan term. Rolling over to a fixed rate will protect you from these rate jumps.
Allow Enough Time To Recoup Costs
The general guideline for recouping refi costs is to keep your mortgage for at least seven years. However, if the rate difference between mortgages is more than a point, you can recoup these costs in a shorter period.
Another option is to roll over closing costs as part of your mortgage. That way your costs are spread over several years, so you don t lose too much if you move in a year or two.
Find Potential Lending Options
Only by researching mortgage lenders can you determine if refinancing can save you money. Online lenders allow you to compare posted rates, fees, and terms. You can even request loan quotes based on your unique credit standing.
One cautionary note on requesting loan estimates keep your loan search to a 45 day period. Multiple credit inquires for refinancing are treated as one inquiry in that 45 day period. After that, those inquires are seen as individual checks and will temporarily drive down your credit score and ability to get low rates. So if you aren t sure you want to refinance, don t give permission for lenders to check your credit.
Refinancing your home loan has the potential to save you thousands of dollars under the right circumstances. So take some time to analyze your current mortgage, and then search for the right financing.
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