Does refinancing your mortgage make sense at this time? That is a key question that must be considered before you begin the process of shopping around to compare refinance rates. Use the following checklist to determine if refinancing is a good move.
- Do you know your credit score? It is important to check your credit report and credit score before beginning the process of applying for a loan. A strong credit score could help you qualify for the best mortgage rates. Get free credit reports at annualcreditreport.com and check myFICO.com to get your credit score. If your credit isn't so great, take time to repair it so that you can boost your credit score before applying for refinancing.
- How long do you plan to stay in your home? A home refinance makes more sense if you plan to stick around. The longer you live in your house the more likely you are to recoup the cost of refinancing. When shopping for mortgages it is important to calculate how many months it will take to break even. If you plan to sell the house before that point, a home refinance may not be such a great deal.
- Do you have enough home equity to qualify for a refinance? Being underwater on a home loan means you don't have any home equity. Owing more than a property is worth means most mortgage lenders won't consider refinancing your home. If you can't sell, continue making the mortgage payments and wait for home values to begin rising again. If you have some equity, you may be able to arrange a cash-in refinance by bringing money to closing to boost your equity.
- Do you qualify for a better mortgage rate than you already have? Most people seek to lower their mortgage rate when refinancing in order to lower their monthly payments. Can you lower your mortgage rate at least 1 percent by refinancing? If so, then it may make sense to consider refinancing.
- Do you plan to decrease the term of your home loan? Many people automatically think that refinancing into another 30-year mortgage is the best way to go to get lower interest and monthly payments. But if you've been paying on a home loan for quite some time, you've probably paid down a good amount of the principal. Getting a 30-year mortgage again means you'll start over with paying down a lot of interest before making much of a dent in the principal. Consider a 15-year mortgage loan if you can afford the payments and don't want to be tied to a mortgage lender for another 30 years.
Compare home loans
Mortgage rates are competitive for homeowners who want to refinance. Even if you are not sure refinancing is the best option, start shopping around to compare mortgage deals. Talk to several mortgage lenders or work with a mortgage broker who can help you evaluate refinance packages.