Planning matters

Refinancing? What You Need to Know

Mortgage rates remain at an all-time low, making the appeal of refinancing your home easy to consider. Before you start to compare lenders, rates and pricing though ask yourself these questions:

  1. Why are you considering a refinance?

First, ask yourself the main reasons you are looking at refinancing. Is it the allure of a lower monthly payment? Having a lower rate? Possibly shortening the life of your loan? Or perhaps you just feel like it’s the ‘smart’ thing to do because rates are so low. As with all big decisions, it’s important to understand the why before you dig in too much.

  1. Financially, does it make sense?

Understand if it makes sense for you financially by asking yourself the following:

  • How does a refi affect your monthly payment?
  • What’s the total amount you’ll pay over the life of the old and new loans?
  • How much (dollars & years) do you have left on your existing loan?
  • How long will it take to recoup the refi fees?
  • How many years are you planning to stay in this house?

It’s a good rule of thumb that if you can refi at a rate that is at least a half percent lower than the interest rate on your existing loan, refinancing could be a good option . Of course, we can help determine if a refinance is a wise financial decision in your specific situation.

  1. Before and after costs.

The excitement of a lower interest rate and a lower monthly payment may quickly diminish when you understand the costs associated with the overall transaction. Refinancing means you are entering into a new loan and term, and that can come at a price. On average these fees can average between $3,000 to $5,000 for bank, appraisal, attorney and title fees. Also, make sure you investigate whether there are application fees. And how about the closing costs? You’ll want to understand if you can afford these fees up front, or how they’ll affect things if rolled into the overall loan balance.

  1. Understand your current situation.

Make sure you look at terms of your current mortgage and if you have a prepayment penalty. Also known as a “prepay”, it is an agreement between you and your bank or lender that regulates what you’re allowed to pay off and when. Look at your original loan paperwork or monthly billing statement for information on whether this applies to you.

  1. Gather your documents.

It’s never too early to start gathering the necessary documents that you’ll need to submit to your qualified lender. Things you’ll need to be prepared to submit include:

  • Paystubs (2 months)
  • Current/previous year’s tax return
  • State identification
  • Statement of assets and debts

Still feeling like a refinance is a good option? Great! Don’t hesitate to reach out to us with questions and together we’ll break down the numbers.

Written By Jennifer Morris