Q. I see lower mortgage interest rates being announced. Is it a good time for me to refinance my home?
A. Many homeowners rush to take advantage of record rates to refinance their homes, hoping to save money or increase their monthly cash flow. Here is some information and advice that can help you decide if refinancing your home right now is the best option for you.
Refinancing your home is replacing your existing mortgage with a new loan. According to ConsumerFinance.gov, there are three main reasons homeowners choose to refinance:
* To guarantee a lower interest rate, which reduces their monthly payments.
* To shorten the term of the mortgage – for example, switch to a 15-year note instead of a 30-year note.
* To get a Variable Rate Mortgage (ARM) with better terms or to switch to a Fixed Rate Mortgage (FRM).
All of these are great reasons to refinance, but refinancing is not free. This means that you will need to do some research to find out if refinancing will help you reach your financial goals.
What to think about if you are considering refinancing:
Understand how mortgages work. The refinancing process is essentially the same as when you took out your original mortgage, which means you probably already know the steps to take. Nonetheless, it’s a good idea to review the main mortgage terms, the differences between FRMs and ARMs, and your rights as a consumer before making a decision.
Determine if you are a good candidate for refinancing. Here are a few pointers: your credit or market conditions have improved since you first bought your home, you want to pay more monthly on a shorter-term mortgage, or you currently have an ARM and your next adjustment. interest rate will significantly increase your monthly payments. On the flip side, you might not be a good fit if you’ve already had your mortgage for a long time, plan to move soon, your home has gone down in value, or your current mortgage has penalty fees. for high prepayment.
Count the cost. Freddie Mac reports that the average cost of refinancing a home is around $ 5,000. You can expect to pay some or all of the following fees: application fee, loan creation fee, points, appraisal fee, inspection fee, lawyer review / closing fee, home insurance , investigation fees, prepayment penalties, fees associated with loans insured by federal housing programs, title search and insurance. If these fees are more than what you will save with a reduced interest rate, refinancing may not be the best option for you. A refinance calculator can help you make a decision. You might consider using a refinancing calculator offered online by the National Bureau of Economic Research, or one from Nerdwallet.
Compare the prices. Federalreserve.gov says comparing prices can save you thousands of dollars. Be prepared to spend some time considering your options. Remember to talk to your current lender as well. They may be willing to negotiate or match better rates to keep your business, and they may be able to waive application or origination fees. Get all the information about each loan you are considering in writing before you pay any non-refundable fee. Read each lender’s documents carefully and ask questions about anything that is not clear to you. These written terms will help you make a side-by-side comparison of your options when shopping.
Avoid getting ripped off. Beware of marketing materials and unsolicited calls with offers that sound too good to be true. Some ads feature low initial rates and monthly payments, not to mention that these payments and rates may increase afterwards. Additionally, lenders who offer “no-fee” loans may simply include the closing costs in the loan and charge you higher interest rates, which could reduce your savings and ultimately cost you more over the life of the loan. ready. Don’t give in to high pressure sales tactics and make sure you have all the facts before signing up for anything.
Look for a reputable mortgage lender. You can visit bbb.org to find reputable lenders.
Michele Mason is president of the Better Business Bureau in Chattanooga.