Refinancing your mortgage can be a great way to save money on your monthly payments or get a lower interest rate. However, it’s important to understand the process and what to expect before you refinanced. Here are four things you need to know:
1. Signing up for an ARM can cause you big problems down the road.
While mortgage rates are currently low, they are not guaranteed to stay that way. If you sign up for an adjustable-rate mortgage (ARM), your interest rate could jump significantly after a few years, causing your monthly payments to increase drastically. This could lead to you being unable to afford your home and eventually having to default on your loan.
2. You might not be able to refinance if you’re underwater on your mortgage.
If you owe more on your mortgage than your home is worth, you might not be able to get a new loan that would cover the amount of the original mortgage. This is known as being “underwater” on your mortgage.
3. Refinancing may not be worth it if you plan to sell your home in the near future.
If you only plan on being in your home for a few more years, refinancing may not be worth it. The costs of refinancing (e.g. application fees, closing costs, etc .) can often be more than the amount of money you would save on your monthly mortgage payments.
4. You may not be able to get a refinance if you have a high LTV.
If you have a high LTV loan (e.g. 80% or more), you may not be able to get a refinance. This is because lenders are typically reluctant to issue loans that are more than 80% of a home’s value, as they are seen as being riskier.
5. You may be able to get a better interest rate by refinancing.
Even if you do not meet the above criteria, you may still be able to get a low-interest rate. Mortgage rates are currently very low, so refinancing to take advantage of these historically low rates could help you save money each month on your mortgage payment.
Refinancing your mortgage can be a great way to save money on your monthly payments or pay off your loan sooner. However, it is important to understand the risks involved before deciding whether or not to refinance. By considering the four points outlined in this article, you can make a more informed decision about whether refinancing is right for you.