With interest rates at their lowest in decades many of us are considering refinancing our mortgages.
Refinancing your mortgage can help you simplify your personal finances since interest rates are so low? Should you refinance now is a good question to ask yourself but it will depend. There are several reasons why you should consider refinancing and low interest rates are only one of the reasons why. Yes a lower interest rate can save you money but make sure you consider these questions before you decide to refinance your mortgage. It will help simplify the refinancing process.
#1 What is your current interest rate? Before you consider if you should refinance or not you must know what your current interest rate is. Is your current interest rate a fixed rate or an adjustable rate? If you currently have a fixed rate, what is the difference in your existing fixed rate and the current market rates. If you have an adjustable rate it is important to know the difference in your existing rate and current rate but you also want to know when your adjustable rate will adjust. This can significantly impact when you need to refinance or not. Also what will the rate adjust to on the adjustment date?
#2 What type of mortgage do you have? Is your existing mortgage a 30 year fixed, 15 year fixed, or 7 year, 10 year, or 5 year adjustable rate mortgage? Understanding your current terms will help with your decision.
#3 What is the estimated value of your home? You want to know if your home has increased in value or decreased in value. The reason you want to know this is because a decrease in value can have a impact on the refinancing of your mortgage particularly if you owe more than your home is currently worth.
#4 What will be your estimated closing cost? You want to know how much the refinancing will cost you. Do you have the funds available? The closing cost will include title work, appraisal fees, and any leader fees they may charge. So make sure you ask before you start the refinancing process. Your lender should be able to give you an estimate of what the closing cost will be.
#5 How much will refinancing save you? Saving over the long term is the reason most people refinance. So calculate your total monthly and yearly savings. Also remember to add in the closing cost when calculating your total savings. You don’t want your closing cost to negate your savings.
#6 What is your lenders underwriting criteria? Due to the current economic conditions many lenders have tightened their underwriting standards. Be sure you understand their criteria. For example,what type of credit score is required?, What are their loan to value standards? and What financial documentation will be required?
#7 How long do you plan to stay in your existing home? This helps to understand what terms are best for your situation. For example, if you know you will be moving or purchasing a new home within 5 years do you want a 30 year fixed mortgage. Maybe or maybe not. If you plan to stay in your current home for the next 10 years do you really want the 5 year adjustable rate mortgage just because the rate is lower rate.
TAKE ACTION by answering these seven simple questions before your begin the process of refinancing of your mortgage. Remember take one step at a time to simplify your personal finances.