In a marketplace where interest rates fluctuate, when rates are lower, it can be beneficial to consider refinancing your mortgage loan. This simply means that you would replace your current loan with one that offers a lower interest rate. This means that in the long run, you will be saving a lot of money.
When to Refinance Your Mortgage?
There are several instances where refinancing your mortgage loan will save you money. The first is when the interest rates dip below what is on your current loan. Another opportunity is when your credit score has improved significantly so that you now qualify for loan with a better interest rate. There are additional conditions that can improve your loan situation. These include when:
- You can get a better interest rate but still recover the refinancing costs in a short time period.
- You are able to secure a loan with a shorter time period. For instance, if you can reasonably replace a 30-year loan with a 15 year one, you will be paying less in total interest payments.
- You have the opportunity to get a fixed rate loan and move out of your adjustable rate loan.
- You would like to take cash out of your home.
Refinancing Your Mortgage
When you decide that refinancing your mortgage in the best financial step to yourself, you’ll find the experience very similar to the process of securing your original mortgage loan. For instance, you’ll go through the examination of your credit history and score to get offers from lenders. The better your credit score is, the better rates you will receive. The next step will be to determine how much home equity you have. This takes a little bit of detective work but it is worth it to understand where you stand. You begin with the current balance on your loan. Then determine the fair market value of the home. You get either work with a real estate agent or use online search sites to find comparable homes in the area. The difference between the loan balance and the home value represents your equity in the home.
Take Your Time
When you are considering refinancing your mortgage, it’s important to take you time and get quotes from several different lenders. By doing so, you’ll be able to select the lender with the best terms and interest rate offer. Be sure to include any fees a lender may charge in your decision-making process. Also, be aware that some lenders may require for the home to be professionally appraised before making an offer. While this may cost you a couple hundred dollars, you may get a better loan offer in the end.
There are many things to consider when refinancing your mortgage but, in many instances, the benefits are noteworthy. You’ll have more money available each month. You may be able to pay the mortgage off more quickly and avoid some interest payments. There is also the opportunity to switch out an adjustable-rate loan with a fixed rate loan. If interest rates are going up, this is an opportunity to save money. Just take your time and find the best refinancing offer for you situation.
