The process of purchasing a home is stressful as well as a huge accomplishment but it can be difficult to refinance your home. This can be a money saving move in some cases but in others the refinance actually costs more money than the original loan. Once you have started to reach out to lenders about a refinance prepare to be swamped with mail or emails from every lender in your area. The mail sent over can often times be misleading with certain variable of the refinance not discussed early on. The following are things that you need to know about refinancing your home loan.
Should It Be Avoided?
There are times where a refinance on a home loan can save you quite a bit of money on your monthly payment. Those people who still owe quite a bit on their loan can actually end up paying more in fee like those incurred by attorneys and others involved in the refinance. Every situation is very different so you need to take a look at a variety of factors before making any final decisions. Sit down and write out the pros and cons of refinancing the home as a few hundred extra dollars per month can really ease financial stress. The best thing that you can do is go online and do your own research. Even asking people on a platform like Reddit can be advantageous as users give honest and educated answers for the most part.
Putting Together A New Realistic Budget
There is a chance that you overestimated how much you could afford in monthly mortgage payments. This happens to plenty of people when they max out their loan amount to the largest amount a lender is willing to give them. Take a look at where you can save money to see if your difficulty paying the mortgage is just mismanagement of money elsewhere. If you find that you can end up paying the mortgage with less financial stress on the family that is great, if not a refinance can improve your quality of life. There is a chance that you might have taken on too much so another revenue stream might be required. See if there is a chance to avoid refinance by renting out a room via Airbnb or to a family member.
Your Current Interest Rate
Interest rates fluctuate over the course of time and certain political events can even have an impact on them. If you feel like your interest rate is far too high take a look at current rates. There is a possibility that you were given an interest rate a bit higher than usual due to poor credit or some other type of factor. Take a look into the market to see what interest rates have been doing in the last few months. Talk to a lender about the best times for interest rates as they will have the best idea as that is what they do for a living. Leaving it to the lender to lock in a low rate will take trust as some lenders are trying to complete loans as fast as possible. There are also many practical tips on how to lower your interest rate:
There are going to be closing costs when negotiating the loan much like when you applied for your initial mortgage. These closing costs can be thousands of dollars but saving money monthly can allow the savings for pay for the costs. If the refinance is only going to drop your payment or save you 10 dollars a month then this is not going to be worth it. Saving $150 a month with closing costs of around $2000 will allow a person to cover these costs in a little over a year. Take this into consideration before refinancing as you want this refinance to make sense for your family financially.
Your Credit Score Still Matters
Those people who let their credit score plummet after they receive their mortgage are going to regret this immensely if they look into refinancing their home loan. This means paying credit card bills on time and paying the mortgage on time even if it is a struggle. Here are more tips on how to improve your credit history. A lender is not going to be willing to renegotiate with a borrower that constantly is missing payments and have bill collectors garnishing wages. Credit card mistakes are going to come back to haunt you if you are not careful. Do not have your home purchase be the last financially responsible thing that you do.
Get Your Home Appraised Again If Necessary
There is a chance that the housing market in your area is booming thus making your home immensely more valuable than what you had bought it for. This can help you refinance especially if the home has appreciated significantly and you have a large portion of the mortgage paid off. This could be a good time to think about selling as another option and taking the profits to live a higher quality of life. Check out recently sold homes in the area to get an idea of how much yours is worth. If you still are unsure bring in an appraiser as this will be the most accurate estimate of the value of your home.
Shop Around For The Best Deal
You need to shop around for the best refinance deal as certain lenders will offer different positive aspects of the deal and negative. Take a look at a few refinance companies to see which is the highest reviewed online. This is not the time to settle for a company giving you an average deal so look for a deal that you are comfortable with.
The process of refinancing your home loan can be stressful but if you keep the above in mind it should reduce the stress greatly. Take your time with this as it is an important decision!