THE TOP 5 QUESTIONS TO ASK YOURSELF WHEN REFINANCING
21 Oct, 2021
Refinancing may save you money or it can cost you money. Knowing the terms, how you get the best terms, and the total cost of the loan will determine if refinancing is right for you. Even when rates bottom out, it’s always a good idea to ask yourself these 5 questions before you refinance.
What’s my credit score?
If you don’t know your credit score, now’s the time to find out. Many banks and credit card companies offer free access to your credit score. If you haven’t activated your credit score yet, ask if it’s available.
You also get free access to your credit report (no scores) weekly through April 2022 here. Every consumer can pull their Trans Union, Equifax, and Experian report, checking for errors or items they must fix before applying for a mortgage refinance. Another option for checking you credit score is to click on AnnualCreditReport.com
How much equity do I have?
Your home equity is the difference between the home’s value and the outstanding mortgage balance. Most loans allow you to use up to 80% of your home’s value in a refinance, including a cash-out refinance. The more equity you have in the home, the better interest rate you’ll get too.
What are the costs?
It costs money to refinance, so work that into your calculations when deciding if refinancing is right for you. One of the best ways to determine if you should refinance is to figure out your break-even point. Here’s how:
Total closing costs/Monthly savings = Months to break-even
You can use the months to break-even to decide if you’ll be in the home before you break-even and if it’s worth it.
What’s left on your current mortgage?
If you’re refinancing to take advantage of better rates, but you restart your loan term, it may not be worth it. Say for example you have a 30-year mortgage now, but you’ve paid on it for 10 years. If you refinance today to get a lower rate but take another 30-year loan, you added 10 years to the time you’ll pay off the loan.
Instead, try choosing a mortgage with a term similar to what you have left versus the term you originally took.
Who’s offering the best options?
Just like when you bought your home, shop around for the best mortgage refinance deal. Just because you hear rates are low on the news or read about it online doesn’t mean every lender offers those low rates.
See which lender accepts your qualifications at face value and will give you the lowest rate. This is important if you have unique circumstances too, as it helps ensure you get with a lender that specializes in what you need.
Think about refinancing carefully – don’t rush into it. Instead, make sure it’s the right choice for you. Will you save money? If you’re tapping into your home’s equity, can you afford the higher payment?
Know the terms of the loan, including whether it has a prepayment penalty, origination fees, and any other unique circumstances that might take away from the benefit of refinancing. Find a loan that’s affordable, has an attractive rate, and benefits you and your family financially.
At Valley Mortgage, we are Refinance experts! Please feel free to contact us with questions – any questions – about refinancing. for you. It may be a perfect time for you to refinance. Or maybe not. Contact us for a no-cost, no obligation visit. We’ll help you think through the pros and cons of refinancing. Call us at 701-461-8450.