When interest rates drop there’s always a greater focus on refinancing. If you are currently paying a mortgage and considering refinancing, there are a number of questions that can help you determine if refinancing is right for you.
Refinancing your home can save you thousands of dollars, but it’s only helpful if it improves your overall financial health.
1. How long have you had your current mortgage?
Before you get too far down the road thinking about refinancing, calculate how long you’ve been making mortgage payments under your current agreement. Lenders will want to see proof that you’ve been paying on your current mortgage for at least a year. If you haven’t been making mortgage payments for twelve months, then, chances are, refinancing your mortgage isn’t right for you. On the other hand, if you’ve been making timely mortgage payments for years, refinancing might be the right course of action–especially if it gets your better terms.
2. How has your financial health changed since signing your initial loan?
If you’ve been making payments on time, making wise financial decisions, and paying off debt, then it’s likely that your credit score has improved. If that’s the case, you’d be in a great position to renegotiate a better interest rate and improve the conditions of your loan. Lower interest rates mean lower monthly payments and more financial freedom month-to-month.
3. What are your current terms and interest rate?
Maybe you processed your first mortgage at a higher interest rate than you would like. If you can find a loan that would reduce your interest rate by 1-2%, then you should consider it. Depending on the amount financed, a rate reduction by a few percentage points can save your hundreds of dollars every month.
Also, if you originally financed your home using a 30-year mortgage and can refinance and initiate a 15-year mortgage, you’ll be better off. Not only will you pay off the balance of your loan sooner, but you’ll also reduce the total amount you pay in interest drastically.
4. Do you have an Adjustable Rate Mortgage?
If your initial loan was an Adjustable Rate Mortgage (ARM), then you’ll want to refinance with a Fixed-rate Mortgage. ARM’s put all the risks of rising interest rates on the homeowner. A fixed-rate mortgage at a lower interest rate means that you can rest assured knowing that your rates will never increase.
Thinking about refinancing? Give First Lenders a call!