In some cases, a mortgage refinance is simply the best option from a financial perspective. You might be able to reduce your interest rate and you might also be able to reduce your monthly payments. However, there are several steps you should take before getting started so you can make sure you benefit from refinancing.
Understand Your Goals
Make sure to know exactly what your goals are when you seek to refinance your mortgage. For example, your goal might be to pay off your loan more quickly. In contrast, if you would like to use your home equity to pay off a different debt or if you would like to use your home equity to start a business, you will be able to do so with a mortgage refinancing program.
Know Your Equity
If you will be tapping into your equity, you will need to know what your equity is to begin with. Your equity comes from your loan-to-value ratio. This is meant to show how much you are borrowing vs. how much your home is worth. The lower your LTV, the better off you will be when refinancing your home.
Understand Your Finances
Before you file for a mortgage refinance program, you will want to make sure that you know your credit score and your debt-to-income ratio. If both of these have improved since you originally obtained your mortgage, you may be able to obtain a mortgage with terms that are better than the terms of your original mortgage.
Know the Benefits
Reducing your interest rate will reduce the overall amount you will be paying for your home. This will cause your monthly payments to become lower. You can also reduce your monthly payments by stretching out the length of your loan.
In addition to lowering your interest rate, you will be able to reduce the duration of your loan so that you will be able to reduce the amount you will be paying in interest in the long-term. You'll be able to pay off your home in ten years and keep your overall interest rate as low as possible.
Know the Costs
Refinancing your mortgage comes with additional fees. You will have to pay for fees such as your application fee, home appraisal fee, home inspection fee, title search fee, and recording fee. Therefore, you must calculate whether you will save money overall when subtracting the fees you must pay to refinance your home.
For more information on mortgage refinancing programs, contact a professional near you.