TUCSON (KVOA) – According to data Freddie MacThe average 30-year fixed rate mortgage (FRM) was 2.65 percent in January 2021. This means that this is the lowest level in recent decades. Many homeowners rush to take advantage of record low rates to refinance their home in the hopes of saving money or increasing their monthly cash flow. The following tips will help you decide if refinancing your home is the best option for you.
What does refinance mean?
Refinancing your home is when you replace your existing mortgage with a new loan. In accordance with ConsumerFinance.gov, there are three main reasons homeowners opt for refinancing:
- To provide a lower interest rate, which lowers their monthly payments.
- To shorten the duration mortgage loan – for example, switching to a 15-year note instead of a 30-year one.
- To get an adjustable rate mortgage (ARM) with better conditions or switch to a fixed rate mortgage (FRM).
The Better Business Bureau said these are all good reasons to refinance, but refinancing is not free. This means that you will need to do some research to find out if refinancing will help you achieve your financial goals.
What to think about if you are considering refinancing
- Find out how mortgages work. The refinancing process is essentially the same as the initial mortgage loan, which means that you are probably already familiar with the steps involved. However, it would be nice to look over key mortgage terms, the differences between FRM and ARM, and your rights as a consumer before making any decisions.
- Determine if you are eligible for refinancing. Here are a few indicators: your credit or market conditions have improved since you first bought your home, you want to pay more monthly on a short-term mortgage, or you currently have an ARM and your next interest rate adjustment will significantly increase your monthly payments. … On the other hand, you can not Be a good candidate if you have a mortgage for a long time, plan to move out soon, your home value has dropped, or your current mortgage has high prepayment penalties.
- Calculate the cost. Freddie Mac reports that average refinancing cost the house costs about $ 5,000. You may expect to pay some or all of the following fees: application fee, loan disbursement fee, scores, appraisal fees, inspection fees, legal entity review / closure fees, homeowner’s insurance, survey fees, prepayment penalties, fees associated with housing insured loans federal government programs; and title search and insurance. If these fees amount to more than the amount you would save with the reduced interest rate, refinancing may not be the best option for you. Refinancing calculator, for example this is from the National Bureau of Economic Research, or this is from Nerdwallet, can help you decide.
- Take a closer look at the shops. Federalreserve.gov says comparing prices can save you thousands of dollars. ” Be prepared to spend some time considering your options. Be sure to also talk to your current lender. They may be willing to negotiate or negotiate better rates to save your business, and they may have the option to waive application or clearance fees. Get all the information about each loan you are considering in writing before paying the non-refundable commission. Read each lender’s paperwork carefully and ask about anything you don’t understand. These written terms will help you make a side-by-side comparison of your options when you shop.
- Avoid cheating. Watch out for marketing materials and unwanted calls for offers that sound too good to be true. Some ads have low starting rates and monthly payments without mentioning that these payments and rates may be increased at a later date. In addition, lenders offering “free” loans can simply include closing costs in the loan and charge you higher interest rates, which can cut your savings and end up costing you more over the life of the loan. Don’t fall for high pressure selling tactics and make sure you have all the facts before signing up for anything.