You own a home. You love your home. But your mortgage has room for improvement. Sound familiar?
Maybe your needs have changed over time. Or you could be ready to improve your financial situation. There are plenty of reasons you may want to refinance a mortgage, such as:
- Lowering your interest rate
- Decreasing the term of your mortgage
- Switching from an adjustable rate mortgage to a fixed rate mortgage
- Tapping into your home’s equity to cover important costs like renovation or college education
Refinancing can also be a good fit if the value of your home has increased since you purchased the home. No matter your reason, you want to approach a potential lender with an idea of what your specific refinance goals are. So if you’re ready to refinance your mortgage, here are some things to look for:
When you approach your refinance with a specific goal in mind, it is easier get what you want. If your goal is to pay off your home sooner than originally planned, look for a refinance with improved terms.
For example, if you currently have a 30-year mortgage, you can try to refinance to shorten the term. Keep in mind, you might have an increase in your monthly payment in order to shorten your loan terms.
If you can afford the new payment, these improved terms can lead to significant long-term savings since you’ll pay less interest over time. Plus think of how amazing you’ll feel when you make that final mortgage payment!
Improved Interest Rates
Interest rates change all the time. You may have purchased your home during a time when interest rates were higher. If so, you may have the opportunity to save money if you refinance when interest rates drop.
Your refinance goal could be to lower your interest rate or move from an adjustable rate mortgage to a fixed rate mortgage. These improved interest rates could help you save money over time.
Remember to look beyond the interest rate at the big picture. You may need to cover some upfront costs during the refinance process, like fees and closing costs. Other possible requirements may include an appraisal report, title search and title insurance.
Private Mortgage Insurance Requirements
Another consideration to keep in mind as you evaluate whether to refinance is the private mortgage insurance requirement. Since a refinance is a new contract, private mortgage insurance may be required even if you didn’t need it for your initial mortgage.
Whether or not you need private mortgage insurance for your refinance will depend on factors like how much equity you have in your home. Talk to the lender and find out if private mortgage insurance will be necessary and if so, how much it will cost.
Once you have your refinance goals in place and you know what to look out for, you’re ready to approach lenders. Look for offers that support your goals and then see what else the lender has to offer.
For example, if you have an adjustable rate mortgage that is approaching the end of its initial interest rate, your current lender may be able to offer you a special deal to refinance into a fixed rate mortgage.
Refinance offers could offer money-saving opportunities, like lower fees or no closing costs. There are also offers that offer convenience like reduced paperwork or faster turnaround time.
The refinance offers that you qualify for may depend on things like your payment history or credit score. And you want to find a lender who you trust.
Look at the big picture to see if the refinance matches with your goals and use the specific details of the refinance to see if it’s the right choice for you.