Q & A: Refinancing
Before you start crunching numbers and weighing the pros and cons of refinancing your mortgage, you need to be sure you understand what exactly a mortgage refinance entails.
How Does It Work?
Refinancing a mortgage means you get a new loan with new terms on your current home. If you want to secure a lower interest rate, build equity in your home faster through a shorter-term mortgage, or have lower monthly payments, it may be time to consider refinancing. It also gives you the opportunity to switch between an adjustable-rate and a fixed-rate mortgage.
Should I Do It?
It’s important for you to consider your current interest rate, mortgage dollar amount and the value of your home, plus details of a new mortgage including the length of term and the closing costs. A refinance calculator can help you determine if refinancing is the right choice for you. The calculator determines what makes the most sense for you based on your personal finances.
What Will It Cost?
You should have paid closing costs when you bought your home originally. When you refinance, you have to pay these costs again to replace your original mortgage with the new one. You can expect to pay 3% to 6% of your principal amount in fees along with any prepayment penalties you could incur.
When Is It a Bad Idea?
Refinancing isn’t for everyone. You must be eligible for a new loan, which means you should have a certain amount of equity already in your home as well as a good credit score. You may not want to refinance if you plan to move from your home soon, since this doesn’t give you time to recoup the closing costs for the new loan.
Please call me for a no obligation mortgage consultation today. I would be happy to discuss your finances with you to determine if you’re ready to refinance.