With interest rates steadily increasing, refinancing your mortgage only makes sense these days if you are stuck paying off an extremely-expensive home loan or are trying to switch to a fixed-rate loan from an adjustable-rate loan.
What Is Refinancing?
Refinancing a mortgage essentially means you are applying for a new home loan to replace your current one. If you refinance to a new loan that has a more affordable rate than your current loan, you may end up saving a lot of money on your monthly mortgage payments and interest. Some people also tap into the equity they have in their homes using a cash-out refinance.
If you’re considering refinancing your loan, here are a few tips that may help.
Check Your Credit Score
Do you know what your credit score is? If you don’t, make sure to check it right away. Lenders take your credit score very seriously since they believe it indicates your ability to repay the loan on time. If your credit score is not the best, consider putting off your refinance application until it improves.
Don’t Forget to Account for Closing Costs
Many people apply for a refinance, hoping it will save them money. But if you don’t consider the closing costs when determining whether or not a refinance is the way to go, you may find yourself in a tough spot. With all the closing fees, which include the application fee, appraisal fee, attorney fees, and inspection fee, added in, a refinance may cost more than what it appears on paper. So, check the closing fees first and determine if a refinance still makes sense.
Work out If You Have Enough Equity
If you are looking to start applying for a cash-out refinance, you need to know how much equity you have at present in your home. You build equity every time you make a payment on your loan. Most lenders require you to have at least 20% equity in your home for them to consider your application. If you don’t have enough equity, you may not qualify for a refinance.
