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5 Things You Should Know When Refinancing Your Mortgage

By January 28, 2018October 31st, 2019No Comments

Mortgage refinancing is a big business right now. With the Federal Reserve slated to increase interest rates several times in the coming year, it makes sense to act now.

 

Of course, not everyone benefits from refinancing their mortgage. Before signing on the bottom line, be sure that you understand these five important things to avoid making a costly mistake.

 

  1. Understand What Refinancing  Can Do For You

Do you really understand what refinancing a mortgage is? Few homeowners do.  When you refinance your mortgage, you are taking out a brand new loan – even if it is with the same lending company. That means that you will have to reapply for your mortgage and be approved for the new loan, which requires a lengthy application process. Depending on your circumstances, your mortgage terms can change – a lot. Be sure to read your contract carefully to ensure that you are indeed getting the loan you want.

In addition, it is important to note that a refinancing comes with a lot of fees and closing costs that must be paid before the loan monies are released.  Another thing to consider is the length of the loan. Shaving 1% or 2% off of your interest rate, but adding 5 … 10 … or more years to the length of your loan is not really the good deal it sounds like. Likewise, paying exuberant fees on a new loan when your current one is almost satisfied may not be financially beneficial. Study the final numbers carefully to make sure that refinancing an existing mortgage is going to benefit your bottom line. In some cases it can be better to keep the loan your already have; even if you are paying a slightly higher interest rate.

 

  1. Understand The Long Term Impact of Your New Payment and Terms

It may sound great to cut your mortgage payment by $300 a month. But, if that means extending your loan by five years, you may not consider it a deal after all. When considering refinancing your home, be sure to carefully calculate what that new loan will mean for you financially over the course of the entire commitment. Think about how long you want to continue to pay on the loan as well as how much you can afford to pay each month. Many homeowners are taking full advantage of lower rates these days by refinancing for a shorter term.  For some, keeping relatively the same payment can shave an additional 5-10 years from their payment schedule. But, if getting that lower payment means adding years to the loan, think carefully about whether refinancing is right for you.

 

  1. Understand the True Costs of Refinancing

What is that new loan going to cost you? Refinancing an existing mortgage means paying a lot of fees: application, appraisal, deed search and tax fees, to name a few. Ask your lender for a complete schedule so that you can figure out the true cost of your new loan. Most experts agree that unless you can save at least a half of a percentage point on your interest rate for 15 to 20 years, the costs of obtaining a new loan may not worth the savings experienced with it. It may actually be more financially beneficial to simply take the money you may have spent on all of those extra costs and put it toward the principle of your current mortgage, thus saving you interest over the course of the loan.

 

  1. Understand the Difference Between a Good and a Bad Lender

You keep getting notices in the mail about ways to save on your monthly mortgage. Every offer sounds better than the last. But wait! Finding the right lender is very important when shopping for a refinancing loan. If you are happy with your current mortgage holder, then by all means try and strike a new deal with them. If, however, you are on the lookout for a better lender, then be sure to check each one carefully before making your final decision.5. Understand Your Options

 

Many people do not realize that they indeed have options when refinancing their home. Most are locked in to specific loan terms, interest rates or even standard loan lengths. While your lender may urge you to refinance with a 20-year mortgage, it is possible to obtain a 10, 15 or even a 17-year loan if you ask.

Be sure that you understand all of the loan types being offered and review the pros and cons of each with your lender before making a final decision.

A lot is at stake when you refinance your mortgage. Getting a good deal can leave you with extra money in your pocket each month as well as a shorter loan length to worry about. But, choosing the wrong new loan could leave you spending more over the long term. To ensure that your refinancing loan is the best for you, be sure to follow the tips above and seek help from a professional mortgage broker.

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