Refinancing can be a great and beneficial move for you and your finances.
If your monthly mortgage payments are a struggle or you just feel as though they’re too high, refinancing can help ease the weight that comes with your mortgage. It can help you alter your mortgage by giving you a shorter term one or allow you to lower your interest rate, ultimately saving you money in the long-run.
Of course, like with any big move, there are always things to consider before moving forward. So, before officially opting to refinance, here are four things to take into consideration.
Your Credit Score
Like with most financial moves, a big factor when you decide to refinance is your credit score. Even if you have a relatively good credit score, there are times when you still might not be qualified for lower interest rates. On the other hand, depending on your bank, and your circumstances, like if your income has changed, you may in fact be ready and qualified to refinance. Just be sure to look into the requirements to ensure you’re ready.
How You’re Going to Refinance
Before officially deciding to refinance, it’s important to know your goals. There are two different ways to refinance, either altering the term of your mortgage or focusing on interest rates, and it’s important to decide which is right for you.
If you’re hoping to make your monthly payments as little as possible, lower interest rates over a long period of time is the way to go. However, if you want to pay less interest or want to pay off your mortgage as soon as possible, then going with a shorter-term loan is the best option for you.
The Costs of Refinancing
Unfortunately, refinancing isn’t a free move to make. You’ll likely pay anywhere between 3 and 5 percent of the amount you were loaned, should you decide to move forward. Of course, as there was when you received your original mortgage, you’ll probably pay certain fees as well. That being said, before jumping in and refinancing, make sure your savings will counteract the initial costs.
In order to refinance in the first place, you must have equity in your home. If home values have dropped since you originally purchased the home, you could find yourself owing more to your lender. Or maybe you simply have low equity in your home. While there are some government programs available if this is the case, if you find yourself in a similar situation, traditional lenders may not opt to let you refinance.
Figure out your equity stake and move from there. If you have 10 to 15 percent equity, you’ll likely qualify for a loan. If not, look into government programs if you need assistance and see what fits your needs.
Refinancing can be great if you’re looking to save money. However, it’s not always a quick and simple move to make. Again, like with many major financial moves, it’s important to do your research before deciding if it’s the right option for you.
Have you refinanced your home? Are you hoping to in the future?- Kayla