There may come a point when you realize that refinancing your mortgage is in your best interest.
Maybe you’re looking to save money on your monthly payment. Maybe you’re looking to take equity out of your home to consolidate other debts. Perhaps you want to secure a lower interest rate, thus saving thousands of dollars over the life of your loan.
Regardless of why you’re considering a refinance, there are some things you should do first:
- Learn more about the status of your current mortgage: Are you up to date with your payments? What is your interest rate? What is the term? How many payments do you have left? When you know the current status of your mortgage, it’s easier to decide if a refinance is right for you.
- Decide on what you’re trying to accomplish: Don’t refinance your mortgage because everyone else is doing it. Don’t refinance your mortgage because your lender (or another lender) tells you that it’s a good idea. It’s critical that you make this decision based on what you personally want to accomplish.
- Reach out to several lenders: You can start by discussing your options with your current lender, but don’t stop there. They may not be able to get you the best rate on your new mortgage. As a general rule of thumb, consult with a minimum of three to five lenders. This will give you a clear idea of which one has the most to offer.
- Understand the closing costs: This is where many people make a mistake. You must understand what you’re up against in regards to closing costs before you make the decision to proceed. If the closing costs are greater than your savings, it’s safe to say that you’re better off sticking with your current mortgage for the time being.
- Understand the time line: Once you choose a lender, ask them about the timeline and what’s required of you. Even though your lender will tell you that the process is quick and painless, this doesn’t always hold true. Proper preparation will go a long way in helping you understand the time line and deal with it according to your schedule.
If you take these five steps, it’s easier to decide if refinancing your mortgage makes sense. Even if you find that it’s not the right decision today, you never know what could happen down the road.
Final tip: as such a big financial decision, don’t rush through the process of refinancing your mortgage. Take your time, move at your own pace, and ask questions along the way. This will position you to take action only when you’re comfortable doing so.
Do you have any experience refinancing a mortgage? Did you make any mistakes along the way? Did the process play out exactly how you expected it to?