Refinancing your home isn’t free. While you have the opportunity to lock in a lower interest rate, there are added costs to refinancing. Much like when you first bought the home, you will have to pay closing costs, title insurance, and anything else your home loan requires.
What does refinancing a mortgage mean? When you refinance your loan, you are securing a new loan with new rates and requirements to pay off the previous or original loan.
Below are 5 home refinance tips you should know before you refinance your home.
1. Only refinance once per loan.
If you’ve been in your home for a long time, and you’ve already refinanced once, Every time you refinance, you carry the closing costs on your credit. Repeated refinancing will have an adverse effect on your financial health. Make sure you are ready to make this refinance your only one.
2. Will you qualify for refinancing?
If you are underwater, there are special refinancing options available. But, for most refinancing options, you need to have at least 5% equity to have your application considered.
3. Refinancing can become expensive.
When you refinance, it’s almost like you’re buying your home again. It’s usually easier to qualify for refinancing than it is for buying a home, but many of the same costs carry over. You will have to pay closing costs, taxes, transfer fees, and more. Some banks will have refinancing options that are advertised as no-cost. There is always a cost, but they might offer an option to have the closing costs, etc. included in your down payment or in the loan total. Make sure you research and discuss your options thoroughly.
4. Lower interest rate isn’t always the best deal.
The lower the interest rate of your refinance, the higher your total refinancing cost will be. It may end up that the lowest interest rate will cost you more than it will save you. Think about all your options as part of a big financial picture. Think about long-term effects, as well.
5. Think about your current credit score.
It should be as good as or better than when you first got your current mortgage. Having a lower credit score will affect your ability to qualify for refinancing. If you do qualify, it will increase the interest rate on your new loan above what it would have been otherwise.
For many people, refinancing can help lower monthly payments which helps in a variety of ways. To make sure refinancing is the best solution to whatever problem you’re having, make sure you speak to your real estate agent or to a financial adviser.
