Mortgage rates are at all-time lows. If you’re paying between 5% – 6% on your home loan, or if you’ve been unable to pay down the principal balance of your loan, refinancing may be a great option for you.
Before jumping into a refinance, make sure you understand how it will affect the loan term and your monthly payments. If you are not prepared, refinancing can be a very costly mistake!
Here are five great tips to help you refinance with confidence:
1. Determine if Refinancing is Right for You
For most people, refinancing does not make sense unless they qualify for a better interest rate and can shorten the loan term on their current loan.
If you still owe 20% or more of your home’s value, then refinancing may not be right for you. You will not receive any benefit from paying off your junior lien (if there is one) and this could negatively affect your credit score.
2. Compare Rates and Fees
Before you sign any paperwork, it is important to compare the interest rates and fees offered by different lenders. The best way to do this is to get loan quotes from at least three reputable lenders. Don’t forget to ask about prepayment penalties, as some lenders will charge you if you pay off your loan early.
3. Have Your Loan Documents in Order
In order to qualify for a refinance, you will need to provide some important documents to your lender. These include:
– Proof of Income (W2s, pay stubs, tax returns)
– Proof of Assets (bank statements, investment statements, stock certificates)
– Account balances for all credit cards and checking or savings accounts
– Monthly expenses (rent, utilities, etc.)
If you are unable to provide these documents, then refinancing may not be right for you.
4. Set Aside Money for Closing Costs
To close the refinance loan, your lender will require you to pay closing costs. These costs can vary but typically range from 2% – 4% of the loan amount.
You can avoid paying some or all of these costs by asking the lender for a no-closing cost refinance.
5. Stay Current on Your Mortgage Payments
If you are current on your mortgage payments, your lender may be more likely to offer you a lower interest rate.
Refinancing is not right for everyone, but it can be a great way to save money on your monthly payments or shorten the amount of time you will be paying off your loan.
If you are thinking about refinancing your mortgage, make sure you do your research and compare rates from multiple lenders to find the lowest one.
Follow these tips and you’ll be on your way to a more affordable mortgage!