As a homeowner, you’ve finally made it past one of the milestones of the American dream. What’s next? Well, a few years from now you may want to consider refinancing your mortgage.
Contrary to popular belief, refinancing your home loan isn’t a quick and easy process. In fact, there may be more paperwork involved than when you first purchased the home.
Of course, you’re probably wondering why you should even bother refinancing your mortgage in the first place. For most homeowners, the goal is to get lower payments. After all, refinancing with another 30-year term will really knock down those monthly payables. In exchange, however, you’ll have to deal with a longer mortgage term and paying more interest.
It’s All About Interest
The key, then, is to factor in how much interest you’ve already paid on your old loan and compare it with how much you’ll have to pay if you refinance. Basically, the longer you’ve been paying off your mortgage, the more each of those payments goes to paying off the principal balance and the interest. Comparing how much you’ve paid in interest so far and how much you still have to pay on your current loan against your refinance will give you a good overview of your total loan costs for either option.
How to Refinance Smartly
Refinancing can be dangerous if done the wrong way and for the wrong reasons. Listed below is a useful checklist to help you stay safe.
- Determine your goals – What are you refinancing for? Ideally, you want to shorten or maintain your loan term and lower your interest rate.
- Find out what your credit score is – Request a credit report to see your history and score. The higher your score, the lower the refi interests you’ll be offered with.
- Look up your home’s current market value – Check the most recent sales of homes similar to yours in your neighborhood.
- Shop, shop, and shop some more – Start by comparing refinance rates online. But remember to do your shopping within a limited window (ideally two weeks) of submitting mortgage applications and pulling credit reports. This will reduce the impact on your credit score.
- Determine the total costs – A home loan refinance is rife with all kinds of fees—application fees, underwriting fees, credit report fees, title research, insurance, recording fees, and tax transfer fees among several others. Be sure to ask for an all-in estimate of all mortgage loan fees from every lender in your radar. And don’t bite too quickly on the no-cost refinance advertising. This usually means the lender will be moving these upfront fees to your loan’s ongoing costs in the form of—you guessed it—higher interest rates or a higher loan balance.
- Collect your paperwork – This might be the most tedious part of the refinancing process. Be ready to collect, print, or download your financial statements, pay stubs, and other documents lenders need during the approval process.
- Be ready with cash – You’ll need it for property taxes, insurance, closing costs, and other expenses at closing. This information will be included in your loan estimate, so there should be no problem with last-minute surprises. You can also ask for these costs to be rolled into your mortgage balance if you prefer to pay them off slowly over your loan term.
If you need further help on refinancing your home loan, mortgage advisor Chris Lamm can you walk you through the entire process. Call our office at 530-282-1166 to schedule a consultation.Questions? Contact Chris Today!