The historic low mortgage interest rates are encouraging many homeowners to refinance their mortgage. Refinancing could reduce your monthly payments, and the total interest you will pay over the time you own the home could be much less. We have put together 5 tips for refinancing your mortgage, and you will find that these tips can save you money and make the process easier.
Research the lenders who are offering the low rates, and check the terms of the offers. Read the fine print of all offers that seem to be attractive. Always learn about costs like points which are fees paid to a lender for granting a mortgage. One point equals one percent of the loan. In some instances a great mortgage might be worth a point or two, however, read about our recommendation for making a cost-benefit analysis which follows. Be sure to find out what closing costs are charged, because these can vary widely. Also, research your current mortgage documents to see if you will be subject to a payoff penalty. These penalties are found in some mortgages, and they are applicable for from two-five years.
2. Make A Cost-Benefit Analysis
If you are working with a mortgage broker, then you will have an expert available to make this analysis for you. If you need to make this analysis yourself, then add up all of the costs involved in obtaining a new mortgage. You will have to estimate some of the costs, but you can get reasonably close to the number. One method for making the analysis is to add all of the costs to the amount of your current mortgage. Then look up the interest rate for this amount for the same number of years as your current mortgage is for. This will give you your new monthly interest payment as well the total interest over the life of the mortgage. However, you are interested in the monthly interest savings. While you may be able to pay for all of the costs in cash, this method will give you an idea of whether refinancing your mortgage will be cost efficient. A mortgage broker is in the best position to advise you about all of the factors in making a cost-benefit analysis.
3. Act Quickly
Once you find the rate you are looking for and decide that it cost effective, then act quickly to lock it in. Mortgage rates can change quickly.
Ask any question to clarify an issue you don’t understand. It is better to get the answer up front than to be surprised at closing.
5. Don’t Extend Your Current Mortgage
Avoid the temptation to borrow from the equity or to extend the mortgage term. Your objective is to reduce your monthly cash outlay.