Is Mortgage Refinance Right for You?
The answer varies depending on how much longer you plan on living at your home, the tax bracket you fall into, and the costs and charges included when refinancing. Refinance loan interest rates have plummeted in recent years, leaving many homeowners eager to refinance and capitalize on the potential interest savings. Other homeowners are considering home mortgage refinancing because they fear future interest rate increases on their adjustable-rate loans and would prefer the security of a fixed-rate mortgage. Regardless of your motivation, refinancing your mortgage can be a rewarding decision when done properly. There are also many other factors to consider when deciding to refinance your mortgage loan. Is the current interest rate low enough to save you money? Should you change the type of mortgage you currently have? How will refinancing affect your payments? These are great questions to ask yourself when deciding to refinance or not.
What's involved in refinancing a mortgage?
In refinancing your mortgage, you are paying most of the same costs as your original mortgage. Basically you are paying off your original mortgage loan and obtaining a new one with a better rate. Make sure to find out all the costs involved when getting a new loan.
Will I save money by refinancing my home mortgage?
To determine this you will need to find out what your new payment will be. Refinancing to a mortgage with an interest rate that is just 0.5% lower than your current rate can save you up to hundreds of dollars each month. However, there are considerable costs and risks associated with refinancing. You will need to cover a substantial amount of up-front costs that will take years of savings to recoup. You should plan to remain in your home long enough to pass the break-even point. To find out the length of time it will take to reclaim the costs of refinancing, divide your closing costs by the difference between your new and old monthly payments.
How many points will the lender charge to refinance a mortgage?
Lenders will offer a wide range of interest rates at different amount of points. A general rule is that each point adds about 1/8 to 1/25 of 1% to the interest rate. The more points a lender charges, the lower the interest rate on the mortgage loan refi and vice versa.
Will this affect the taxes you pay?
Your tax payment may increase due to the less interest you deduct on your income tax return because of the lower interest rate on your mortgage loan refinance. This in turn will decrease the total savings you might get from a lower-interest mortgage.
How do I choose a refinance mortgage lender?
Shopping around is key before making a final decision on a lender. Some lenders will offer certain incentives such as lower interest rates and reduced closing closts to gain your business. While deciding on which lender to go with, you might also want to consider other types of refinance mortgages. Situation changes all the time so it doesn't hurt to see if other mortgage loans will suit you better. You will be doing yourself a disservice if you apply for a refinancing loan with only one lender. Instead, apply for quotes on home mortgage refinance loans with at least two or three lenders. Once you receive an offer, see how it stacks up against the offers of one or two other banks to ensure that you’re getting the best deal. Also remember that you do not have to limit yourself solely to traditional banks. You might also shop for mortgages from credit unions or mortgage brokers. Mortgage Finders Network is a great starting point to find mortgage refinance quotes so that you can get the best refinancing rates available.
Get the mortgage refinancing paperwork ready.
Refinancing mortgages requires a great deal of paperwork, so start gathering the necessary documents now. You will likely need to provide your income tax statements, recent pay stubs, bank statements, and other documents that prove your income and assets. You might also want to check your credit score before you apply. The best refinancing rates are only offered to borrowers with excellent credit ratings. Mortgage refinance online can help reduce paperwork and can even speed up the process in some instances. Get started with our refinance form today!
Request an accounting of all loan refinance fees.
Refinancing loans have up-front costs, such as application and appraisal fees, as well as closing costs, which can add up to several thousand dollars or more. When you are comparing loans, ask each potential lender for a detailed accounting of all fees associated with the refinancing mortgage. By law, your lender has to provide you with an estimate of these fees within three days of receiving your application.
Watch out for potential mortgage refinance quote pitfalls.
Once you find the right refinance loan for your needs, remember that mortgage rates fluctuate even on a day-to-day basis. To prevent the rate you were initially offered from rising, ask your lender to lock in the rate quote until you close on the loan. Additionally, be sure to save enough money to cover closing costs and leave yourself a little leeway. The estimate your lender provides early in the process will not be exact, and you don’t want to be caught off-guard if the estimate was too conservative.
Avoid short term refinance loans.
If you are getting rid of the house in one year, then it is probably not best to spend a lot of time, money and energy to save a few extra dollars on short term refiance. In general, your time is best spent on the long term. Focusing on saving money in the short term is nice, but it can be misguided. Some of the ways you save short term are different than long term, and can backfire. You want to find yourself in a good financial place in the future. That means you may be safe and better off by taking a small hit for the next year. If that is something you really cannot afford to do then that is alright. Get with a professional who can help manage your finances with you. Then you will have a set plan that can help you better then if you went at it alone.