Too often, homeowners wish they had asked more questions when they were in the process of getting their mortgage.
While you can’t go back and re-do your initial mortgage, you can refinance your current mortgage and put yourself in a better financial situation, saving money along the way.
Let’s look at the top DO’s and DON’Ts of mortgage refinance.
What Does Refinancing Your Home Mean?
Mortgage refinance, or “refinancing,” is a method for homeowners to restructure their existing mortgage with more favorable terms. These can include:
- A lower interest rate
- A shorter (or longer) term
- Switching from a fixed-rate mortgage to an adjustable-rate mortgage or vice versa
- Taking cash out of your home equity
- Consolidating your monthly debts into a single monthly payment
How Does Refinancing Work?
When you refinance your mortgage, you’ll pay off your current mortgage and use your new refinance loan to do so.
Refinancing your mortgage can offer significant benefits, but it’s important that you consider taking a look at what you should (and shouldn’t do) to put yourself in the best financial position.
Mortgage Refinance Do’s
DO Check Your Free Credit Report For Errors
Getting the best interest rate and other refinancing terms relies heavily on your credit report. It’s important to know your credit status before you apply for mortgage refinance programs.
You can get a free copy of your credit report (once per year) from each of the three main credit reporting agencies (CRA) TransUnion, Equifax, and Experion.
CRAs clarify a borrower’s financial profile and determine how likely someone will repay the loan on time and in full.
In addition, lenders review your credit report and credit score when reviewing your mortgage refinance application. Lenders also use your credit information to determine the interest rate you can receive. The better your credit rating, the lower the interest rate you could potentially receive.
If you notice any omission, errors, or mistakes, you can clear them up by directly contacting the credit reporting agency and providing the correct or updated information.
DO Shop Around For The Best Rates And Request Quotes
When looking into mortgage refinance options, it’s important that you contact several lenders. Different lenders will be able to offer different interest rates.
Look for brokers that offer several mortgage products, such as the FHA streamline refinance home loan program, or if you’re an active or retired military service member, consider brokers that offer VA-backed home loans, and ask them to provide you with a quote.
DO Be Realistic Regarding The Value Of Your Home
Understanding the actual value of your home will help you access the best mortgage refinance options available.
If you haven’t had an appraisal done on your home in a long time, it can be a sound financial investment considering that most homes increase in value over time.
The more your home is worth, the more money you can borrow with a mortgage refinance loan.
DO Make Sure The New Loan Will Benefit Your Financial Situation
Most homeowners look at mortgage refinance as an option to improve their situation. Ensuring you get a lower interest rate is one of the best ways to make that happen.
The interest rate you pay not only affects your monthly mortgage amount but also how much you will pay for your loan in total. By getting an interest rate of even half a percentage point lower than your current mortgage, you could wind up potentially saving thousands of dollars, or more, over the lifetime of your mortgage loan. Also, you could potentially consolidate higher interest debt.
Mortgage Refinance Don’ts
DON’T Refinance Your Home For More Than It’s Worth
Your home’s equity is the amount of money you’ve paid into your home; it is the value of your home.
When your home’s actual value is less than the amount of money you owe on your mortgage, it’s called negative equity. In other words, it means you owe more money on the home than it is actually worth.
While it might sound like a fast way to pick up some extra cash, it can be a significant disadvantage, especially if you hope to sell your home. You could wind up selling your home above the asking price and still owe money on the mortgage.
DON’T Assume You Will Get The Best Rate At Your Local Bank
Your local bank will often have special offers for long-time customers as a way of saying thank you and these offers can be very beneficial.
But when it comes to getting the best interest rate on your mortgage refinance, you’ll want to do more than shop local.
Many times mortgage brokers, like River City Mortgage, can give you better interest rates than your current bank because we work with a variety of different lenders.
It’s worth it to shop around.
DON’T Forget To Get An Accurate Estimate Of Your Property Taxes
One factor used in calculating your property tax is your home’s value (the other is your tax rate).
If your property taxes are incorrectly estimated, it can impact the overall assessed value of your home and how much money you can borrow to refinance your mortgage.
DON’T Show Up Uninformed
Even the most careful lender can make mistakes or misinterpret information, so you don’t want to automatically trust everything they tell you.
Read up on mortgage refinance options you may be interested in. The more you know about the process the more confident you’ll feel in your decisions.
If you’re a homeowner interested in refinancing and have some mortgage refinance questions or would like to get a free quote, get in touch with the licensed mortgage refinancing specialists at River City Mortgage.
Photo by Scott Graham on Unsplash
