Refinancing your mortgage comes with pros and cons. It is important to take the time to make sure refinancing is a good option for you. If it is then there are a few considerations to keep in mind, as well as a few tips to get you through the process smoothly.
1. Compare Interest Rates – If your goal is to reduce your interest rate make sure that refinancing your mortgage will be worth your while. If you are taking out a long 30-year mortgage then even a small decrease in rate will help. However, if you don’t intend on living there many more years, or if you are going to take a short-term, you want at least a full point decrease.
2. Decide if Cash-Out Refinancing is a Good Idea – The thought of having a lump sum of money is attractive, but is it smart? Do you need it? Will you invest it? Keep in mind that rates are higher with this option.
3. Fixed vs. Arm – Consider the advantages and disadvantages of both fixed and adjustable-rate mortgages. A fixed rate provides a lot of security for a longer term, but an adjusted one can be very desirable if you plan on selling within a few years.
4. Don’t Forget About Closing Costs – Everyone likes to talk about refinancing and brag about the great deal they got, but few remember to tell you about closing costs. Bet you thought you were done with those, right? Well, they won’t be as much this time around, but this certainly is an expense to keep in mind.
5. Consider the Home Affordable Refinance Program – If you owe more on your house than what it is worth, you may qualify for refinancing under the Home Affordable Refinance Program.
6. Tidy Up Your Credit – Get a copy of your credit report, and take care of any blemishes you have. Keep in mind it can take 30 days, or more, for changes to show up on your credit report.
7. Don’t Wait too Long – If you are in an adjustable-rate mortgage and want to refinance with a fixed rate because you see rates starting to go up don’t take too long to move forward with your plans. Many people see rates rising and think if they just hold out a little they will dip again, but then they keep going up. If they are rising consistently there is a good chance they will continue to do so.
Deciding on refinancing your mortgage is a big choice. You want to make sure that the pros outweigh the cons for your situation, and remember that refinancing is not always the best option.