So the Fed has kept interest rates pretty low – Ok, unbelievably low! And they’ve been like this for quite a while.
For those who thought they missed the boat on the first low-rate-go-around, this is a great time to ask some questions to see if a mortgage refinance makes sense for you.
If you are contemplating a mortgage refinance, you’ll certainly want to do the math – this is where a mortgage refinance calculator comes in handy. If you are a first-time home buyer, you may want to check out the Essential Guide to First-Time Home Buyer Loans.
Otherwise, if you’re contemplating a mortgage refinance, you’ll want to ask these key questions about mortgage refinancing to figure out if it is right for you.
Mortgage Refinancing Questions To Ask
1. What is Your Current Rate and What Rate Could You Get?
It’s not just as simple as looking at what the current mortgages rates are however. There are some factors that could affect your rate including credit scores and your debt-to-income ratio.
You may want to improve your credit score first, and then call around to see what kind of rates you could get. Otherwise, if your credit score is great, then go online or give some mortgage companies a call to find out what rates you could get.
2. What Is Your Time Frame?
If you are planning on staying in your existing home for only another year or two – run the numbers and see if it makes sense. You may want to hold off on the mortgage refinance!
However, if you plan to stay a little longer, your break-even point won’t seem as bad. You should have a decent idea of your time frame to help make a more educated decision.
The longer you stay, the more attractive the refinance becomes, but again – run the numbers and figure out your break-even point.
3. What Are the Costs?
Closing costs and fees add up pretty fast! Ask your lender for a good breakdown of what the fees will be on your refinance so you can factor that in when you do the math.
Your existing lender might be able to give you more of a break – so give them a call first. But you’ll also want to call around and get a sense of what other lenders are charging so you can use that for leverage.
In today’s day and age, I’m not sure how flexible lenders are with their closing costs, but I’ll tell you one thing – it doesn’t hurt to ask them to drop some fees, lower some costs and see if you can save a few bucks or more on the refinance.
4. What Is Your Current Mortgage Type?
Does anyone still have an Adjustable Rate Mortgage (ARM) these days? If you are one of the few that has them, you’ll want to seriously consider a fixed-interest loan!
My guess is that a 15 or 30-year fixed mortgage is about the same rate or pretty close to what you have on your ARM!
Or, consider this – If you currently have a 30-year mortgage , but you’d like to get that down to a 15 – look at a refinance. Depending on how the numbers shake out, you could wind up cutting your mortgage down without having to pay that much more in monthly payments.
This difference in rates may allow you to become debt free sooner than you anticipated.
5. Will a Refinance Allow You to Get Rid of PMI?
Are you paying Private Mortgage Insurance (PMI)? PMI is private mortgage insurance that lenders typically charge if your loan-to-value ratio is not quite 80%.
If you weren’t able to put 20% for a down payment, chances are you are paying PMI. But you might be able to get rid of PMI through a simple refinance, which will help keep you from throwing money away!
Decreasing home values have made mortage refinancing difficult in many cases. But if you can do it and get rid of PMI, that will be a very good motivator to go for the refi!
If you paid off some of your mortgage and think your loan-to-value is at least 80% then you may want to refinance so you can get rid of PMI!
What Other Questions Would You Ask?
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