Refinancing your home can be a tricky and involved process, especially if you have never done it before. After you’ve gone through the steps to decide whether you should refinance, the tips below will help you through the rest of the process:
1. Specify your reason for refinancing.
Different mortgage rates and types are available based on whether you are looking for lower monthly payments, a lower interest rate, or fixed monthly payments. Specifying upfront can avoid confusion later.
2. Determine your break-even point.
Just because the current interest rate is lower than the one you’re abiding by doesn’t mean it’s a good idea to refinance. Itemize all the costs involved with refinancing to determine if you’ll have a better deal after all is said and done. Use a mortgage calculator to determine how long it will take to regain closing costs after refinancing. And remember that a “no closing costs” refi *does* in fact have closing costs!
3. Strike while the iron is hot.
If you’re waiting for interest rates to fall, you’ll want to act immediately once they do. Have your plan in place by completing refinancing paperwork in advance so that you can move forward quickly once the time is right.
4. High scores win.
Another thing to do while waiting for rates to fall: check your credit score! Make sure it’s in good shape before you refinance. Check early so that you’ll have time to make changes and improve your score if necessary.
5. Lock in your rate.
Once you settle on a interest rate, have your lender put it in writing. You don’t want to find yourself going through the whole refinancing process only to have your rate change for the worse before the procedure is complete!
6. Don’t change your credit or bank accounts.
In the final days before a mortgage closes, lenders often ask for a second credit report. As such, don’t open any new bank accounts or lines of credit until after the mortgage process is completely final. You could run the risk of negatively impacting your credit.
Instead of spending the money you save with your refi, plan to invest it instead. Another option is to use the savings to further pay down your mortgage.
8. Moving Soon? Think twice before refinancing.
If you’re planning to move within the next couple years, your newly-lowered payments may not outweigh the cost of refinancing. Do some careful calculations before moving forward!
Do you have refinancing tips to share? Join the conversation in the comments section below!