7 Tips to Ensure You Get the Most Money Out of Refinancing Your House
Many people jump at the first opportunity to refinance their mortgage because they think it will automatically save them money. This is not always the case. A decision to refinance your loan must not be carried out quickly. You must weigh the pros and cons and only when you feel the pros outweigh the cons should you consider refinancing your home because if the pros do indeed outweigh the cons, then it will likely save you money. A new loan is not necessary for all borrowers. Below are 7 tips to get the most money out of refinancing your house.
1. Refinance only if it lowers your payments: The whole point of refinancing your house is to get lower monthly payments and ultimately save some extra money. Do not refinance unless it reduces your monthly payments. A lower rate does not necessarily lower your payments. You must understand the various closing costs involved.
2. Never settle for a single lender: You must check with 2 or 3 lenders, and compare the good faith estimates side by side. This will give you an idea of what you are getting into. It will also give you more of an insight on whether or not you can truly reduce your monthly payments and ultimately save money each month. Remember the idea is to get those monthly payments lowered as much as possible.
3. Improve your credit history before approaching lenders: Your credit history is the number one factor affecting the rate of your new mortgage. Each lender finds your credit score from the credit reporting agencies. You must ensure that you are making the minimum payments on your credit cards and are not opening any new credit lines.
4. Cash-out refinance: A cash-out refinance gives you cash in addition to what you owe your current lender. You get access to cash at the same rate as your refinance loan. This will increase your monthly payments. With that said, it is probably only best to use this method when you absolutely have to and you need the money in advance. However, if you are looking to save money each month and reduce your payments, then this method is not the way to go.
5. Check if you are close to paying off your first mortgage: If you are close to paying off your first mortgage, then you are better off without a refinance. The cost of refinancing does not justify refinancing your existing loan. You can however, use it to help pay off your second mortgage if you have one.
6. Home Affordable Refinance Program (HARP): If you owe more than the value of your house, then you can apply for a HARP loan. This is a low interest loan designed by the federal government. To apply, you must be current on your existing mortgage. This can help reduce the interest and help you payoff the monthly payments on your home.
7. Do not pay for points on your new loan: A Point refers to the amount paid by the borrower to lower the interest rate. If you pay for points, then it will erase potential savings from a refinance. You will end up with a lower rate and same or higher payments.
A refinance loan makes sense if it saves you money. A refinance loan may not be the best option for every home-owner. It depends on various factors such as the rate of your existing loan, equity on your home and number of years remaining on your current loan.
This article was inspired by Comfort King Ltd.
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Category: Mortgage
