Refinancing Your Mortgage

Real Estate Tips

Are you tired of paying more on your mortgage than you should? You can save money by refinancing your loan to a lower interest rate. If you have a less-than-ideal rate, refinancing could help you save money, but you’ll need to thoroughly research the market and talk to your current mortgage lender before jumping at a refinancing offer. It’s also wise not to rush into refinancing with a variable rate loan without considering several important factors.

When to refinance your mortgage

When you take out a fixed-rate mortgage, the interest rate is locked in for that period of time. When rates go down, refinancing can be an excellent option — one that could save you thousands over the life of the loan. The interest rate on your new loan will be based on various factors, such as your income and assets, how much you owe, and interest rates in the market at the time.

Before you refinance, make sure it’s right for you. Firstly, you should only consider refinancing your loan if you can get a lower interest rate. Another good reason to refinance is if you have been with the same bank for a while, they might offer you a lower rate than the average on the market to keep your business. If that’s not possible, shop around and compare rates at various banks and lenders before committing to anything.

Banks don’t only check your credit score when you apply for a loan; they also look at your income and assets. If you’ve accumulated some money since taking out the original mortgage, lenders will take that into consideration before offering you a new rate. Additionally, if your credit score has improved since taking out your original loan, it could also be a good time to refinance, as you might be able to get a better deal on refinancing.

But if your score has dropped since taking out the original mortgage, you might not qualify for as good terms as before or might not be able to refinance at all until you improve your credit score. Your income and assets will also affect where lenders set the bar for refinancing.

Refinancing Your Mortgage

Refinancing your adjustable rate loan

Because adjustable rate financing is subject to increases, refinancing an existing loan might not be a good idea. However, there are some situations where you might get a lower interest rate if you switch from an ARM to a fixed-rate loan. Check how long the rate-lock period is on your ARM loan. If you can’t lock in a lower rate, it might be better to keep the ARM and not refinance. You’ll also want to check whether an ARM comes with a “rate reset.” In that case, refinancing your loan might be a good idea because interest rates could start going down again soon.

You’ll also want to verify  the difference in interest rates between your ARM and the new loan before refinancing. Even if there is a big difference, you might be better off keeping the rate on your existing loan, unless you can lock in a much lower rate with a fixed-rate loan.

If you have to prepay the financing by closing, don’t take out  the new loan unless you can at least break even on the new deal. Additionally, if your ARM is already “under water,” refinancing may not help. In this case, you will usually have to sell the home, downgrade, or start making full payments on the loan before an existing ARM can be refinanced into a fixed-rate mortgage.

Fees associated with refinancing

Many banks charge fees for refinancing, and those fees can be as high as 3 percent of the total loan. That’s a lot of money, but if you can reduce your monthly payments and the savings is worth it, it could be a good decision.

However, there are some lenders that do not charge a penalty for paying out an existing loan early. If you are considering refinancing but don’t want to pay a lot of money, shop around for the best deal.

The interest rate on your old loan will be adjusted to reflect the new terms of the new agreement. You’ll also typically pay closing costs that are specific to each loan, which could include the application fee, appraisal fee, title search and insurance, and credit report screening.

Final thoughts

If you are looking to refinance your mortgage, make sure you know how it will affect your monthly payments. Refinancing a mortgage can be an excellent way to lower your payments and save money each month. However, before refinancing your current loan, don’t forget that there are often added fees for closing costs or other expenses associated with refinancing that may offset any benefits of reduced interest rates or term lengths. It’s important to research all options thoroughly so that you’re able to decide which option best suits both your needs now as well as in the future.