Mortgage Refinance Questions Answered
With 2022’s mortgage rate climb finally taking a few steps backwards, all thoughts are once again on refinancing. This is because despite their recent climb, interest rates remain low enough for a lot of homeowners to still save money by refinancing their mortgages.
But of course, whether you are looking to save money on your monthly payment or want to take advantage of your home’s equity to cover a major expense, you want to get the most from your mortgage refinance. To make sure this happens, there are several things you need to consider.
Is Now the Right Time to Refinance?
As attractive as it might be, just because interest rates have slid back down to just above 5% doesn’t automatically mean that now is the right time to refinance for a lot of homeowners. There are a lot of variables that you need to keep in mind, such as your current interest rate, how much equity you have in your home, your financial situation, how much longer you’re planning on living in the home, and more.
Can You Get the Best Rate?
When you’re refinancing your mortgage, you want to get the lowest rate possible, so you can save as much money as you can on your loan. As a result, you need to meet certain thresholds to qualify for that rate. If your credit score or debt-to-income ratio aren’t where they need to be, then you could even wind up with a higher interest rate than what you’re currently paying. To take advantage of all the good things a refinance can offer, you need to make sure that you do the following:
- Make all your payments on time
- Pay off all overdue debt
- Lower your debt-to-income ratio
- Refrain from opening new credit card accounts
- Avoid new credit card purchases
- Refrain from closing any of your credit accounts
What Should You Use a Cash-Out Refinance For?
When you have built up a lot of equity in your home, it can be tempting to refinance your loan with a cash-out refinance. But to get the most out of this type of refinance, you want to be thoughtful about how you spend the money you’ll get.
While you’re free to use the money how you wish, there are some expenses that are better served than others. For instance, using a cash-out refinance to cover expensive home repairs and remodeling projects is usually a good idea because the money you spend will help increase the value of your home. The same thing applies to paying off high interest debt, like college loans and credit cards. Paying off high medical bills is also a good use for the cash.
Remember, a cash-out refinance may not allow you to save money on your monthly loan payment because your new loan will be for more than what you owe on your current loan. So, you want to use the money you get wisely.
How Much Will Closing Costs Be?
Closing costs typically range anywhere from 2% to 5% of the loan amount, so depending on how much you will be borrowing for your new loan, you could be required to pay hefty closing costs. For many homeowners, the closing costs alone can impact whether they should refinance or not.
For example, if you are not planning on remaining in the home for the length of time it will take for the savings you get to break even with your closing costs, you will wind up losing money on the deal. For most homeowners, this means staying in the home for at least three to five years after refinancing.
Choosing the Right Mortgage Broker Means Everything
Making the decision to refinance your home loan is something that should not be taken lightly. You want to make sure you are in the best position to reach the goals you are trying to reach. Choosing the right mortgage broker is therefore extremely important.
A good mortgage broker will help you choose the right refinance product for your unique situation and expectations. They will serve as a valuable resource of information and advice, and they’ll guide you through the process to help ensure you get the most out of your mortgage refinance. Put in the work to find the right refinance broker and you’ll be starting off on the right foot.
