Sometimes, it can seem like refinancing a mortgage can be even more complicated than saving for a mortgage deposit to begin with
Most banks certainly don’t make it much easier for homeowners, either. After all, the ultimate goal of refinancing your mortgage is lowering your monthly payments. But believe it or not? It’s not simply keeping you at higher interest rates behind the complexity of refinancing. It’s your reliability.
We live in difficult times. And emergencies can and will happen. There may be numerous reasons why your credit rating may have dropped. Even one late or unpaid bill can affect your credit score. And traditional banks will rarely have an open ear for your side of the story.
Whether you have good credit or not-so-good credit, learning how to refinance a mortgage doesn’t have to be quite as complicated as you’d expect. But there are a few things you need to take into consideration first.
Should You Refinance Your Mortgage? If So, Why?
Let’s face it. You’re refinancing your mortgage with one goal in mind: to save money. And for most homeowners, that’s going to mean reducing monthly payments by refinancing for a 30 year loan. But is that the right choice for you?
With a 15 year loan, you’re admittedly paying greater interest each month. And for those of you on a tight budget, that can make a considerable impact. But over time, you’re actually going to be paying considerably less than with a 30 year loan.
There’s an even better reason to refinance: to tap into your home equity. It’s been estimated that there’s approximately $6 trillion in home equity waiting to be tapped by 44 million U.S. homeowners. One common way to get the equity out from under your home is known as cash-out refinancing. This occurs when you refinance a loan to borrow more than you owe on your current one. This solution isn’t without its drawbacks, however. We would recommend that you speak to a trusted financial adviser before making a decision on whether or not cash out refinancing is right for you.
What Do I Need To Refinance A Mortgage?
- Your Current Credit Score
We actually recommend you check your current credit rating on a regular basis—at least once a year. And your credit score will ultimately affect both the approval process for refinancing as well as your interest rate. You can find your score for free from any one of the three main providers: Experian, Equifax and TransUnion.
- The Current Value Of Your Home
The value of your home at purchase isn’t necessarily accurate. Anything from current trends in the market to your neighborhood location may play a role when a lender calculates your interest rate. You can get a ballpark idea from sites such as Zillow or Trulia. In fact, you’ll find these sites are some of the more popular ones lenders rely on during the mortgage refinancing process.
- Estimated Mortgage Refinancing Costs
It’s always a good idea to plan on what to expect prior to applying to refinance a mortgage. There’s numerous mortgage calculator tools available for free, but keep in mind that they simply provide an estimate; what a lender offers may vary considerably.
- Gather Your Paperwork
And not just your title, deed and initial mortgage contract. Make certain you have receipts or print outs of any and all recent payments. Don’t necessarily assume your current broker will have instant access to your records!
- Consider Locking Your Rate
Interest rates are never set in stone. And while there’s always going to be a chance your rate will actually decrease in 18 months, more often than not the exact opposite is true. If you’re comfortable with your current interest rate and you don’t foresee any changes in your budget in the immediate future, consider a lock-in mortgage rate. So long as you close within a given time period, a lock-in will freeze your interest rate. You may potentially miss out on a lower APR, but it will ultimately help you learn to plan your monthly budget consistently.
- Don’t Be Afraid To Shop Around
Your current lender may not be offering you the best available rate if you’re looking to refinance a mortgage. With many Michigan lenders offering refinancing costs at an all time low, there’s no reason for you to be locked in to a bank that’s not entirely in tune with your needs. Don’t just accept your first quote out of convenience’s sake. Work with a lender who knows your needs. And a lender you can rely on.
Your home is more than just a shelter. It’s your future. And helping you refinance the mortgage that’s best for you is just one thing that sets us apart. Find out more at Calcite Credit Union.