Your home is your castle, and it’s probably the biggest investment you have. Like any good investment, however, you need to manage it carefully — and that may mean refinancing your mortgage at some point.
While 2020 saw some historic lows where interest rates were concerned, you haven’t missed your chance to benefit: 2021’s mortgage rates aren’t exactly soaring. While there may be some minor fluctuations up and down daily, the low rates are expected to continue through 2021 and possibly into 2022.
Should You Refinance Your Mortgage?
So, the odds are high that you could refinance relatively easily — but should you?
People refinance their homes for all kinds of reasons, but here are some of the top motivators:
- You want a lower interest rate: When interest rates are hitting rock bottom, you have a chance to lower your monthly loan payment and shave thousands of dollars off what you ultimately pay over the life of your mortgage.
- You want to convert to a fixed-rate loan: If you took an adjustable-rate mortgage you probably gambled on your ability to refinance some time in the future — and your gamble is now paying off. A fixed interest rate can help you avoid a big bill in the near future.
- You want to pay your mortgage off faster: This is a great time to switch from a 30-year mortgage to a 15-year mortgage. Given the low interest rates, you may be able to do it without much (or any) upward change in your payment.
- You want to tap into your equity: Home values are rising, so that may give you plenty of equity to play with if you decide to refinance. That can pay for repairs, upgrades and even that kitchen or office renovation you want. You can also use the money to pay off high-interest debts or fund a child’s education.
- You want to eliminate your FHA mortgage insurance: If your home’s equity has risen, you may be able to refinance your FHA loan and eliminate those pesky mortgage insurance premiums — which will also lower your monthly costs.
Naturally, refinancing does have some potential drawbacks. For example, if your existing loan has a prepayment penalty, that could increase the overall cost of your refinance. Closing costs, which can be as high as 5% of your loan amount are also a consideration. Your credit, too, may have some impact on your ability to refinance, especially if you’ve accrued a lot of debt over the last few years.
Finally, you need to think carefully about whether this is the right time for you to refinance on a personal level. If you think you may want to move again in a year or two, refinancing now could be a mistake. You may not have time to hit the “break-even point” on your new mortgage before the sale, and that will cost you money.
How Do You Get Started If You Want to Refinance Your Mortgage?
So let’s get down to the basics when it comes to a refinance: Where do you even start? Here are some good steps to follow:
1. Decide on Your Main Goal.
Knowing what you hope to accomplish with your refinance can help you stay focused as you explore the various options available. For example, knowing exactly how much equity you want to pull out of your home to remodel the kitchen can stop you from taking the maximum you can get — which might not be ideal for your situation.
2. Dig Into Your Current Situation.
Do you really remember all of the terms of your existing mortgage? Do you know exactly what you still owe or the amount of your current interest rate? Gather up your loan documents and bank statements so that you can more easily break down the pros and cons of a refinance. While you’re at it, pull the paperwork you’ll need to file with your mortgage application, including your payroll records, tax returns, bank statements and your homeowners insurance policy.
3. Pull Your Credit Scores.
Naturally, your credit score is a major factor when it comes to getting a good mortgage rate — and you shouldn’t go into this process blind. Pull your records with all three of the major credit bureaus and look for problems that could derail your plans. (If there are problems, you have some time to take corrective action, and that should be your first priority.)
4. Select a Lender.
Tucker Mortgage offers very competitive refinance interest rates and closing costs. In some situations, an appraisal may not even be required to obtain a refinance. In addition, closing costs for a refinance can be rolled onto the loan if you choose. Refinances typically take 30-40 days to complete and you will be able to skip a mortgage payment as part of the process. Please visit www.tuckermortgage.com and choose a Senior Loan Officer that can assist you.
Ultimately, whether or not you should refinance is a personal decision you have to make. A Tucker Mortgage Senior Loan Officer can help you determine if a refinance is right for you.
