5 Questions to Ask Before Refinancing Your Home
If you’re thinking of refinancing your home, you’ll want to make sure you getting the best deal you can, and that your refinance won’t end up costing you extra.
Before you decide to refinance, ask yourself these five questions.
How long have you had your current loan?
Because you pay closing costs each time you refinance, you’ll want to get your money’s worth. If you haven’t had your loan for very long, and interest rates are only marginally better. It may not be worth it.
What are the closing costs on your new loan?
Borrowing money costs money, and you’ll have to pay something at closing. Make sure those closing costs are affordable. You may also want to ask if they’re negotiable.
What is your current loan rate and what rate is available to you now?
If rates have dropped significantly, or you’re eligible for a better rate than you were when you originated your mortgage, a refinance could save you money. If your current home loan is an ARM, and the current rates for fixed mortgages are decent, you may want to lock that in now.
Do you have a better credit score, or loan to value ratio, or debt to income ratio? All of those things could get you a better rate. Or has your ability to pay changed? A refinance could offer a lower monthly payment.
What is your goal in refinancing?
If you’re looking to save money over the life of your loan, you’ll want to make sure you have a better rate. Do you want to pay off your loan sooner? If you have a 30 year mortgage now, a 15 year loan could offer better terms, if you can make the higher monthly payment (and it may not be as high as you think). If you’re struggling to make payments, a refinance for a longer term could take the heat off by lowering your monthly payments.
When in doubt, it doesn’t hurt to call your mortgage broker or lender and see what they have to offer. Keeping an eye on your mortgage is the best way to know when it might be time for a refi.