Advertising disclosure: This article is published by Best Rate Loan LLC, a licensed Michigan mortgage broker (NMLS #2075205), and is advertising. It is not an independent review, ranking, or comparison, and it is not financial, tax, or legal advice. We have a financial interest in the products discussed. Information is general and for educational purposes only; it is not an offer of credit or a commitment to lend. Rates, programs and program terms change without notice.
Mortgage rates move constantly, and after the swings of the past few years, many homeowners are sitting on a rate that no longer reflects today’s market. For some, that means it might be time to refinance. Is that the case for you?
While many homeowners will benefit from refinancing when rates drop, that rule doesn’t apply across the board. It might seem like the proverbial no-brainer, but the truth is a bit more complicated. In this post, we’ll explore how to tell if you should refinance now or if you should bide your time a little longer.
Step 1: Consider Your Goals
The first step with refinancing is to consider your goals. What are you trying to achieve with the refinance? Are you trying to consolidate debt? Are you looking for a lower monthly payment? Once you know your goals your Mortgage Advisor will help make sure you get a good deal and you are achieving your goals.
Step 2: Make Sure You Qualify
When you refinance your mortgage, you will still have to go through underwriting to make sure you qualify. The lender will have to check your credit score, work history, income, and equity ratio in the property, among other things, to determine your eligibility. Have your information — such as your credit score and income — ready, and ask the lender if they can give you an idea of what you’d qualify for. Some lenders can tell you where you stand without needing to pull your credit.
Step 3: Determine How Much You’ll Save
The point of refinancing is that it should benefit you in some way. Make sure you know how much refinancing your mortgage will save you and that it justifies the cost. If, for instance, your goal is a lower monthly mortgage payment, check your current rate against current market mortgage rates (and the rate you would qualify for). Is it actually much higher? Will refinancing into a rate that’s even half a percentage point lower save enough money for the refinance to make sense? What’s the break-even point (the point at which the savings equal the cost of the refinance)? Is it 2 years or 20 years? An experienced Mortgage Advisor will help you figure out these key decision indicators.
Step 4: Figure Out Your Closing Costs
All financing comes with closing costs of some type. With taxes, the average amount Americans pay in closing costs is over $5,700. Once you know how much your closing costs are, it will help you identify your break-even point. If, for instance, your closing costs are $5,700 and you’re saving $250/mth in interest, your break-even is $5,700/$250 = 22.8 months — a little under two years. That may be a good deal for you, because if you have a 30-year fixed mortgage, you get to enjoy 28 more years, or 336 payments, of a reduced mortgage payment.
Step 5: Make A Plan
The final step is to make your plan and execute it. If you have been working with a mortgage professional and you have done steps one through four, you should be in good shape. Once you have terms from that mortgage professional, it’s not a bad idea to get a second opinion. If you’re working with a bank, call your local Mortgage Broker and see if they can offer you better terms.
Making Your Decision
Is now the right time to refinance your mortgage? There is no one-size-fits-all answer here. While a mortgage calculator can be more than helpful in figuring out the numbers, there are other things you’ll need to consider. Working with a reputable mortgage broker is important — with professional advice and guidance, you can determine whether you’re best served by staying with the rate you have now, or trying to refinance your mortgage at a lower rate.
Get in touch with us at Best Rate today and discuss your refinancing needs.
Best Rate Loan LLC is a Michigan-licensed mortgage broker (NMLS #2075205).
This article is general educational information, not advice, and not an offer of credit or a commitment to lend. Mortgage rates, loan programs, down payment assistance program terms, and tax rules change frequently, and the information here reflects our understanding as of the last review date shown above. Verify current program terms with a licensed mortgage loan originator before making a decision. Best Rate Loan LLC does not provide tax, legal or accounting advice.
