The main goal of mortgage refinance is to reduce your rates and grow your equity faster. However, the whole process can be intimidating if you don’t know the steps to take.
First and foremost, identify the most popular errors and learn how to avoid them. Such mistakes can weaken your goals and increase your expenses.
Another important part of the refinancing is identifying the lowest interest rate. This strategy allows you to increase your savings and build the value of your refinance mortgage among other benefits.
Still, there are several other practices that you can use to achieve the most out of refinancing. Here is a list of those practices.
- Optimize your credit score
Maintaining a good credit score and history is very important when refinancing. Likewise, having a high credit score increases your chances of acquiring lower refinance rates from lenders.
High interests rate increases both the long-term cost of your mortgage and the monthly payments. You have a better chance of getting your home loan approved by underwriters if your credit score is good.
While there is possible to refinance your home loan even with bad credit, it makes sense to build on your credit score before commencing the refining process.
- Compare finance rates
It is always important to compare finance rates from different lenders before opting for a particular shop. You can save thousands by comparing different quotes.
Once you have settled for a particular lender, be sure to lock in your rate as well. This prevents you from spending extra in case the prices surge before your loan closes.
Also, find out the cost of fees and whether you will be required to make payment upfront, or they will be included in your new home loan.
Most lenders prefer charging higher interest rates instead of offering closing-costs refinance to compensate for the fees.
- Tap home equity carefully
Home equity is the difference between the estimated value of your home and the current balance of your home loan. For instance, if your loan balance is $300000 and your home value is $400000 then your home equity will be $100000.
You can decide to tap at least 50% of your home equity and use it to fiancé your other goals. Nevertheless, it isn’t advisable to use your equity to finance short-term goals like going on a month-long cruise.
Rather, choose to do more important things like home improvement, promising business ventures, college education among others. See this link to read more https://www.investopedia.com/how-to-refinance-your-mortgage-5192147.
- Make sure your refinance is worth it
Once you decide to refinance, make sure you’re doing it for the right reason. Remember, the more you refinance the longer it takes to complete your mortgage.
For example, refinancing after five or 10 years will most likely extend your home loan to approximately 30 years.
Well, the monthly payment and the rates may go down drastically, but you could still pay more across the lifespan of the home loan. Plus, unless the program has a non-closing cost, you will still pay for the closing cost.
- Know your property value
The easiest way of knowing your property value is by consulting with a real estate agent. A real estate agent will analyze and give you the current estimate of your home value based on your location.
Knowing the value of your home allows you to come up with an accurate amount for your refinance. If the estimate is wrong, you might end up paying more than intended.
Similarly, if the estimate is inadequate, you can fail to spot saving opportunities. On the other hand, a high estimate may not give you desired mortgage rates.
Have a clear financial goal
There are so many reasons why homeowners refinance. It could be to shorten the term of their loan, reduce the monthly payment, or debt payment. Note that, every situation differs. As such, it is important to learn and understand what each involves. Have a clear reason why you need to refinance.
- Be transparent about your finances
Besides your credit score, your lender will want to know your financial history. As such, have your bank statements, pay stubs, tax returns, and any other thing that your mortgage lender requests.
Also, be willing to disclose your net worth including your assets and liabilities. Basically, have all your documents ready before you begin the refinancing process to ensure things run smoothly. Plus, you have a better chance of winning over the lender if you are transparent with your finances.
- Keep tabs on your loan
Every time you close a payment, have a copy of your closing paperwork and store it in a safe place.
Also, you can opt for an auto-payment program to make sure you never miss your payments. Some lenders will give you discounted rates if you enroll for an auto-payment.
Conversely, your lender may opt to resell your mortgage to a different company, so you need to be on the lookout for emails notifying you of such changes. Click here to learn more.
Most homeowners refinance to reduce their monthly interest rates. Others refinance so that they can stop paying mortgage insurance premiums while some do so to convert home equity into desired cash. You can also choose to shorten the years of the mortgage, for instance, reduce a 30-year loan plan into a 15 -year one. Nevertheless, you will need to qualify for a refinance before you get approval. Also, make sure to shop around for the best refinancing rates before settling for a particular lender.