Whenever mortgage rates drop, many homeowners begin contemplating refinancing their home mortgage. But with so many variables, how can a homeowner be sure if refinancing would be beneficial? The first question you should ask is, “Will I stay in in my home long enough to recoup the closing costs with the savings from my reduced monthly mortgage payment?”
Borrowers with adjustable-rate mortgages (ARMs) may choose to refinance with a fixed rate loan to lock in a low rate they’ll never need to think about again. If you want to build equity more quickly or pay off your mortgage sooner, you can refinance into another, cheaper 30-year mortgage and use the monthly savings to prepay your mortgage.
Bankrate.com offers a refinance breakeven calculator to help you determine if refinancing is right for you.
Here are some tips:
- Gather your information. You can find an estimate of the market value of your home by going to Zillow or Trulia.
- Check your credit. The stronger your credit rating, the lower the interest rate you’ll be able to get. Rates will be higher if you take cash out or are refinancing a multi-unit or investment property. Check your credit reports from Equifax, Experian and TransUnion, the three major credit-reporting agencies to ensure that no errors have reduced your score. You can also request a free report from Annual Credit Report.
- Consider fees. Lenders will typically charge you from 1% to 3% of the loan balance to refinance closing costs which will cover the lender’s origination fee, third-party costs (including the cost of an appraisal, title search and so on) and recording costs. You could pay the closing costs out of pocket. Or you could pay a higher interest rate in exchange for a lender credit that offsets closing costs.
- Have documentation for everything. Before a lender can approve your loan, it must document and verify your employment, income, assets and more. The lender will need an appraisal of your home’s value. Your lender may accept an automated valuation, but if it can’t access enough data or you’re taking cash out, the lender probably will send an appraiser to visit your home.
- Consider service. If you want proactive service and guidance, check with us! More than 99% of our customers who responded to our service survey, said they would recommend Marine Bank to others.
Have questions? Contact our team of mortgage lending experts and we’ll be happy to assist you.