We are not home owners yet but, we have many home owners friends who recently refinanced their mortgage. We are in our 30’s so most of friends are and refinancing at this age, makes every sense. On a 30 year mortgage even a quarter percentage point gain in interest rate means saving a few thousands of dollars. This article is geared towards home owners who are looking to refinance
You may think that refinancing should bring some mortgage payment relief to you as long as you manage to lower interested rate. This sounds great, but in many cases, refinancing can cost more in processing fees than it could actually save you in monthly payments.
So, don’t form your opinion that refinancing is always good. Weigh all options, here’s how.
You do not want to deal with the hassle and expense of refinancing unless it will significantly improve your payment situation. There are a few things you can do before refinancing to make sure it is the best financial decision for you at this moment and for years to come.
The following points talks about steps you must consider taking before opting for refinance.
Make Sure Refinancing Will Benefit You
If you find out that by refinancing, you can lower your monthly mortgage payment, you may be hot to jump on the refinancing train. Before you do anything, enter your current mortgage status into a refinancing calculator. For the basic calculators, you only need to know your loan rate, the cost of your house, and how much you have left to pay.
If you are comfortable with getting detailed, there are also many of complicated refinance calculators online. This is a quick and free way to see where you stand in regards to refinancing your mortgage.
Let’s say the closing cost for refinancing is $4,000 and your monthly interest rate save comes out to be $100. So to recover the closing cost it would take 40 Months. If you have more than 40 months of mortgage payment left, then obviously financially refinancing makes more sense. Here’s one calculator from MSN, this is pretty handy tool and one of my friends mentioned about using this. You may use Zillow calculator as well.
Talk to a Broker
If your situation is more complex, you should consider talking with a mortgage broker. This costs money, but you can get help planning out your finances and investments, which will save you money in the long run.
A broker can offer good insight into whether a mortgage refinance is the right move for you. Perhaps you have already refinanced, but an online calculator indicated that you could benefit from doing it again. Consulting with a broker can help clarify these more complicated situations for you, so you do not accidentally jump in over your head.
Build Your Credit
One of the reasons you may be considering refinancing is that you had a bad credit score when you first bought your home. If so, you may not have had the best loan rates available to you and ended up with a higher monthly payment than you should have.
Once you have made sure that refinancing is the right choice, prepare yourself by repairing your credit score as much as possible. Improving your credit is an important step in alleviating your financial stress, and it can also result in a better refinancing rate for you. Good credit gives you more power over your loan situations.
Refinancing your home is not a decision to take lightly, as it could throw you into deeper debt if you are not careful. If you have already refinanced your mortgage, or if you will not be living in your current house much longer, you should generally stick with the mortgage that you currently have.
According to Daily Finance, people are refinancing less and less often, simply because they have already done it, and the obstacles are becoming too bothersome. If you feel that refinancing will improve your current loan and benefit you in the long run, do the best you can to prepare yourself for this major financial decision.
Sometimes waiting for rates to go down further or shopping for lower rates for little bit longer can also give you better rates. So, before closing the deal shop as much as you can, I would say.
Readers, if you have exercised refinancing option, do tell us more about your experiences, tricks and lessons.