Don’t be afraid to ask the tough questions before you spend time and money on a mortgage refinance. (iStock)
Are you considering a home refinance? As interest rates drop, it is tempting to go in and start applying with a lender. However, refinancing your property is a great financial decision with lasting consequences.
While refinancing your home may allow you to lower your monthly payment or access equity funds to pay off other debts, there are a few things you should consider before going ahead.
5 common questions people ask when refinancing
Thanks to the lower interest rates, many people are considering a refinance. Here are the answers to some of the most common mortgage refinance questions:
1. What happens when you refinance a mortgage?
Refinancing a mortgage is the equivalent of getting a new loan for your home. The new loan generally offers lower interest rates, longer payment terms, and / or a lower monthly payment. When a lender approves your refinance, the new loan replaces your original mortgage agreement.
To see what kinds of rates you qualify for, connect some of your information to Credible’s free online tools.
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2. What are the refinance mortgage rates today?
At press time, the 30-year average fixed-rate loan had an interest rate of 2.98 percent, and the 15-year average fixed-rate mortgage had an interest rate of 2.48 percent, according to Freddie Mac. These historically low interest rates follow the Federal Reserve’s emergency rate cuts in response to the coronavirus pandemic. It is unclear how long prices will stay so low, so if you are considering home refinancing, taking action now could help you set lower rates.
Use an online tool like Credible to compare rates and lenders. Reviewing the terms of various lenders will help you get the best deal possible.
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3. Is it the right time to refinance my mortgage?
Interest rates are at an all-time low, which means that for many people, this may be the best time to refinance a mortgage. However, each borrower’s situation is unique. If refinancing your mortgage is a serious consideration, take time to answer a few questions about your motivation and financial situation to see if you still feel good about moving on.
Things to consider:
- How is my credit
- Do I have enough capital in my house?
- What are my financial goals for the future?
- How long will I stay in the house after refinancing the property?
- Why am I considering a refinance?
- What are my current loan terms and can I qualify for better terms?
- Have I already taken out a line of credit or a second mortgage?
- Can I pay the closing costs associated with refinancing a home?
One of the key considerations is whether refinancing your mortgage will save you money. Before applying, use a mortgage calculator to determine if a refinance could save you money.
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4. How does refinancing a mortgage work?
When you apply to refinance your mortgage, your lender will review your current loan. Ideally, you will have at least 20 percent equity in the property.
Like getting your original loan, you will want to shop around to find the best lender for your situation. Use a tool like Credible to review various lenders that provide you with rate and cost estimates. Once you have found a lender that meets your needs, you will need to complete the application process.
The lender will review your credit report and the assets you have on your property. During this process, be sure to review all documents and be aware of closing costs and other additional fees. Ask your lender about closing costs and other upfront fees to save time and money.
The result is a new loan with new terms. Be sure to review its terms before signing the loan documents. Be on the lookout for any errors or items that raise questions.
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5. When is the wrong time to refinance my mortgage?
You should avoid refinancing your mortgage unless you plan to stay on the property for several more years and if your savings are less than the cost of your mortgage refinance. If your current home loan is in tolerance, talk to your lender to see if you qualify for a refinance.
Expect to pay between $ 1,500 and $ 4,500 in closing costs and fees for your mortgage refinance. You can pay the fees in advance or transfer the price to the balance of the new loan.
While low interest rates make refinancing your home loan an attractive option, be sure to run all the numbers and use helpful resources like Credible to contact experienced loan officers who can advise you on your financial situation. .
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