You’re probably hearing it everywhere – mortgage rates are at an all–timelow. These historic low rates make it a great time to consider refinancing.However, you first need to determine if refinancing is right for you.
When you refinance, you are replacing anexisting loan with a new one. There are fees,and typically verification of your income,assets and credit history is required. So,why would you refinance? There are manypotential benefits that result from restructuringyour current loan and, generally, one ormore may help ease the financial burden ofowning a home. Additionally, restructuringwhat is often your largest debt may put you ina better position to reach your financial goals.Some of the reasons to refinance include:
- Saving thousands of dollars in interest over the life of the loan
- Lowering your monthly mortgage pay ments
- Consolidating debt by combining other high interest debt into the mortgage, if you have available equity
- Improving your cash flow
- Reducing the repayment term and owning your home faster
- Achieving greater flexibility with your finances
So how do you know if refinancing is right foryou? It could be a good option if:
- You have a balloon or adjustable–rate loan and want the stability of a fixed–rate loan.
- You want to take advantage of the equity available in your home.
- You want a shorter–term loan so you can pay off your home at a faster rate.
- Current rates are 1.5 percent lower than what you are paying.
- You have a first and a second mortgage, and you want to combine them into one low rate loan.
Keep in mind that low interest rates are notalways enough to warrant refinancing. Youneed to consider what you are saving versusthe cost, and if you plan to stay in your houselong enough to justify that cost. Refinancingis not always the best option for you if:
- You are moving in the next three to four years.
- You will not recoup the cost in 36 months, or
- You will only save a minimal amount of money every month.
If you think refinancing is an option, talkto your lender. Make sure to pick a loanrepresentative who will take the time toassess your situation and help you decide ifrefinancing is – or isn’t – right for you. He orshe should work with you to explain all theoptions available.
If you decide to apply, there are a few thingsyou will want to know to make the processas smooth as possible. Keep in mind, whenyou refinance, you are essentially creatinga brand new loan, and the lender will needmuch of the same documentation youprovided the first time. The process mayseem cumbersome, because unlike whenyou purchased your house, you will not havea real estate agent to help you navigate theprocess, and you do not have a seller to paypart of the closing fees.
Be mindful that the fees associated withrefinancing can be in the thousands ofdollars, depending upon your loan amount.To get an estimate of the cost, ask your lenderfor a Good Faith Estimate. Typically thesefees are financed into the new mortgage, oryou may choose to pay them out of pocket.When speaking with a lender, it is a goodidea to have the following items at hand tomake the call or visit more productive andinformative:
- An estimate of how much you owe on your existing loan
- An estimate of your income, debts, and assets. This will help the lender quickly prequalify you for the loan.
- A copy of the deed, note, and survey for your house. These are likely found in the closing packet you received when you first purchased your house.
- A copy of your Homeowners Association By–laws and Covenants, if applicable; also most likely found with your original closing documents.
Refinancing your existing mortgage loan maytake some effort, but the financial rewardscan be tremendous. Find a stable and securelender you trust to help you decide if now isa good time for you to refinance your homeloan.
