Refinancing your home is a big deal, and can save you some money over the long run if you do it right. If you think you might be ready to refinance your home, you’ll want to consider that carefully. If you’re not sure, or you’re unprepared, you could find that you’re not getting the benefits you expected. In some cases, you could even end up owing more or having a higher payment, and those are definitely things you want to avoid. With the right refinancing choices, though, you’ll have a little bit less to worry about. Then you can get the loan you want at a price you need, and continue loving the place where you live. Here are seven things to consider when you think you might be ready to refinance your home.
1) How long have you wanted to refinance?
If you’ve wanted to refinance for a long period of time, now may be the right time. That doesn’t mean you can’t refinance if you just decided on it, but you generally don’t want to make snap decisions when it comes to such a large financial move. Instead, it’s often better to give it some thought, and that way you will be sure that the decision you’re making is the right one for you. When you want to refinance for a long time, you can wait for the best time and make your move when you see that it will save you the most money.
2) What interest rate do you have now?
Before you decide whether you want to refinance your home, consider the interest rate you’re paying. If you purchased your home at the height of the housing market, you probably have a pretty high interest rate. That means you’re paying a lot more for your house than you would have to, and that you may be able to see a significant reduction in your mortgage payments if you refinance. While the interest rate isn’t the only consideration, it can definitely be a significant issue when it comes to how much you’re paying on your house and whether you can do something that will help reduce what you have to pay out each month.
3) How low are the current rates?
When you’re deciding on a home refinancing, you also want to know the current interest rates. Even if you have a high rate, you probably won’t save much money if the current rate isn’t much lower. Unless you can save at least one percentage point on your interest rate, it’s generally not the best move to refinance, because refinancing isn’t free. By watching the current rates for a while and getting an idea of what they’re doing and how much different they are from your current rate, you can decide whether now would be a good time to apply to refinance, or whether you should wait.
4) What kinds of fees will you need to pay?
There will be fees that you have to pay when you refinance your mortgage. Some lenders give you a chance to roll your fees into your new mortgage, but that just adds to the amount you actually owe. Instead, it’s better to pay the fees at the closing of the refinance, along with the standard closing costs that you’ll also need to pay. That’s why it’s important that the interest rate is low enough to make a real difference, so it offsets the money you’ll need to pay to refinance. Loan origination fees are the most common lender fees, and they can be over $1,000 in many cases.
5) How does your credit look?
There’s a lot to look at when you consider a refinance, and your credit will be a big part of that. Even though you’re trying to refinance and you’ve already purchased the home, you still need good credit in order for your lender to work with you. Having good credit also means that you’ll get the opportunity for some of the lowest rates, and that can mean even more savings from your refinance choice. It’s a great way to have more money, so spend some time checking out your credit before you apply to refinance your home.
6) Has your home gone up in value?
If your home has gone up in value, you may be asked if you want to refinance and take that equity out. In other words, you would get a larger mortgage, giving you an opportunity to have some extra money. With that in mind, though, you may not want to lose your equity, and would prefer to just refinance the amount you currently owe. There are plenty of options when you refinance and have equity, so consider them carefully.
7) What would you do with the extra money?
When you consider refinancing, it’s important to determine if you’re really ready to do it and whether it’s going to be to your benefit. One of the issues to think about is what you would do with the extra money if you pulled out some equity, or the extra cash you’ll have when your payment is lower. Both of those scenarios will provide you with some more money than you’re used to having, and if you have specific plans for that you may want to refinance in order to use that money some other way.
