Is Mortgage Refinancing Right for You

Is Mortgage Refinancing Right for You

Refinancing your mortgage can be a great way to save you money. When fixed mortgage rates go down, meaning the amount you are currently paying in interest would be less and you could save money over time, it may seem like a great deal.

However, refinancing is not always a great option. Refinancing does not pay off your mortgage or decrease the amount you owe; it just has the potential to decrease the amount of interest you pay and will alter the terms.

Although mortgage rates may seem better than what you currently have, when you consider the full equation, you may end up hurting your financial situation through refinancing. You especially never want to refinance more than once, so if you are going to do it, you want to do it smartly. Before you speak to your lender about refinancing, you should consider a few important facts about your home and financial situation.

What Is Your Goal
Knowing why you want to refinance your mortgage is key to ensuring you end up with the right deal for your situation. If you are looking to save money through reducing your interest payments, then refinancing might be for you.

Some people also opt for refinancing in order to consolidate their loan debt, especially if you have a mortgage and home equity loan. If you are attracted to a new interest rate, look further into its terms and conditions. Just being attracted to a low sounding rate is not a good enough reason for refinancing, especially as sometimes it is not as great a deal as it seems. Often, the smaller interest rate is an adjustable rate term. It may be lower now, but it might just increase in the future, costing you more money if you already have a fixed rate.

Consider Your Situation
Refinancing only makes sense if you have enough payments left on your mortgage to actually benefit from the savings. Regardless of the refinance rates, the deal has to make sense in practice, and not just in theory. If you are almost done paying off your loan, then changing the interest rate will not matter, and likely will save you nothing, and could even end up costing you more. Additionally, you will want to ensure you are planning on staying in the home for enough time to make a difference. Look into your current mortgage and its terms and see where you stand. Calculate the difference, with the new loan details. Do not forget there is a closing cost involved with a new mortgage. You will need to have enough payments under the new term to make it worthwhile to pay the closing costs.

Think of Your Credit
If you have decided to refinance, you should consider your current credit score. Even if the current mortgage rates are excellent, you will most likely not benefit if you do not have a great credit score. You can get copies of your credit report online, and you are entitled to an annual free check. Typically, you will have to pay to see what your credit score is. If you are going to refinance, spend some time ensuring you have a strong credit.

Pay off any loans or credit cards that you can easily manage. Have a strong, reliable source of income. Do not take out any unnecessary loans, especially if you know you are going to be refinancing soon. You also do not want to make any big purchases before refinancing. You want to have a strong income to debt ratio. If you find you do not have strong credit, then refinancing might not be for you at this time.

The author is associated with creditsesame, which is a leading analyst offers advisory services to ensure a healthy financial status like best credit monitoring, free credit report score, refinance rates, mortgage refinance calculator.

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