There are many good reasons to switch your existing home loan for a new one through mortgage refinancing… First, today refinancing rates so competitive that you can significantly lower your monthly payments by getting a new mortgage. In addition, refinancing will allow you to change the terms of your mortgage – for example, the length of the repayment period – so that your loan works best for you.
But before you rush to refinance, there are a few key steps you need to take. Here are three things to check out on your list.
1. Make sure you plan to stay at home for a while.
Refinancing can make a lot of financial sense, but only if you stay in your home long enough to reap the benefits. When you refinance your mortgage, you will be charged closing costs for a new loan. These fees usually range from 2% to 5% of the loan you take, and you need to make sure you stay in your home long enough to recoup those costs and come out financially ahead.
Let’s say you want to refinance a $ 200,000 mortgage and you will be charged 3% of the closing amount for that. This means you will pay $ 6,000 in advance.
Now, if refinancing lowers your monthly mortgage payments by $ 300, you will pay off in 20 months, so unless you plan on moving in at least four or five years, then refinancing makes sense. But if you think you can move in a year and a half, then you really can lose money through refinancing.
2. Check your credit report and rate
To qualify for a competitive refinancing rate, you will need good credit. And check your credit rating before applying for a new home loan. That way, if he’s not in good shape, you can work on enhancing it before use.
So it’s a good idea to check your credit report for red flags, even if your credit score seems to be in decent shape. Perhaps your credit report contains a mistake that lowers your credit rating by, say, 40 or 50 points. Correcting this error can improve your rating and allow you to get an even more attractive mortgage refinancing rate.
For example, let’s say you have a credit rating of 730. This is a good rating and should give you a fairly low refinancing rate. But if you can get 780 points, you can get an even lower score.
3. Decide if you want to take cash out of the house.
Many people who are refinancing will exchange their existing loan balance for the same amount of money. But you might consider doing cashing refinancingwhere you borrow an amount in excess of the loan balance.
Let’s say you owe $ 200,000 on your mortgage, but now your home is worth $ 270,000. Let’s also assume that you have $ 15,000 in credit card debt that costs you a lot of money in interest. If you refinanced a $ 215,000 cash payment, you would be able to pay off your credit card balance and then pay off your new mortgage at a much lower interest rate.
Some people also do cash refinancing to help cover the cost of home improvements or needed repairs. If your home is worth a lot more money than your remaining mortgage balance, consider whether it makes sense to take some money out of your mortgage.
Based on where the refinancing rates sit, now is a very good time to apply for a new home loan. However, take these steps first to get the most out of your refinancing.