For homeowners, there comes a time in which they may need to consider their current scenario and look into refinancing their mortgage. While this option sounds scary at first, this can open the doors to allowing you to move forwards into a better monetary situation, especially since many families don’t handle the same circumstances as they did when they signed their original loan. If you’re planning to remain on your property for many years to come, the benefits from this financial movement can stack up even more in the long run. Since there are so many variables at play when thinking about how to choose the best option for your family’s future, we would like to share 4 things to know about mortgage refinancing rates so that you can make an informed decision on the matter.
1. Learn about Common Refinance Fees before Starting the Process
Refinancing your mortgage isn’t as complicated as it sounds. Once you’ve contacted a potential lender, they will look into your FICO score to verify if they can actually provide you a credit offer. The entire process will take on average about a month to complete, in which the financial institution will ask for a home appraisal to know your home’s current market value and its available equity to understand your situation. Beforehand, you should expect to repair any issues that this appraisal may raise in its report before continuing with the process, alongside paying the appraisal costs.
Don’t be surprised if you’re billed for things such as loan origination fees, credit report costs, loan origination fees, and so on. The estimated costs will exclusively vary between cases. For instance, the discount points allow you to access lower interest rates, in which each point represents 1% of the loan’s value. Some upfront costs can be expensive, between $3,000 and $15,000, but you may get more benefit in the long run as a result.
2. Shop Around Before Choosing Your New Mortgage
Since refinancing your mortgage is a big financial decision, don’t feel pressured to make a decision immediately. The financial institutes offering the best loans after checking your credit score won’t hesitate in answering your inquiries and be transparent with their process, and you can complement their information with online research and consultations with local financial organizations if needed. If you’re with an adjustable-rate mortgage, the ideal scenario for you would be to start looking before the initial fixed-rate period runs out, so that you aren’t rushed by the market to refinance the loan with another lender. Note that in some states, you may have to rely on a closing attorney for the refinancing process as a formality.
3. You can Potentially get Better Interest Rates
Many people try to refinance their mortgages for different reasons. Whether you’re looking to pay off your property sooner rather than later with higher monthly payments, you want to stop paying for private mortgage insurance or consolidate debts, knowing when it’s the best time to refinance your loan can be all about minimal numbers. Even a decrease of as little as 1% of your interest rate can significantly save you money over the total amount of your new mortgage value. Nowadays, the market offers low-interest rates, and it’s likely that you will benefit from these changes. However, note that some people won’t stay in their properties before recouping closing costs based on the refinanced monthly payment, so if you’re planning to sell the house at some point in the near future, even a lower interest rate may not benefit you as much as you’d think.
4. You may Afford Better Monthly Payments
One of the benefits of this financial decision is the control you get over your new monthly payment. You’re currently with an adjustable-rate mortgage, you could have decided to go with an initial period of two years in which you’re with a fixed interest rate, and afterward, your monthly payment will increase or decrease depending on adjustments on that rate every 6 months. Some people may feel comfortable with this model if they feel like the interest rates will go down in the future, but refinancing your mortgage to a fixed-rate one may avoid a potentially unsustainable situation. Others may ask for higher monthly payments so that they’re able to pay off their loan sooner, in preparation for their retirement years.
Mortgage refinancing rates can benefit you greatly in the long term if you can pay the upfront costs of the process. However, timing plays a crucial role since rates can increase with changes in inflation and better numbers in the national economy, which in turn can result in total interest costs way higher than what you were originally paying.
