Refinancing is a great way of getting lower rates. However, the decision to get a refinance should be taken only after considering all aspects. While getting a refinance is certainly possible, the process can be arduous. Unless you are careful, you won’t get the benefits you were hoping for.
The interest rates on fixed rate mortgages are now at their lowest. So if you have a fixed rate home loan with a higher interest rate, your only option to get a lower rate is to refinance.
The right refinancing deal will help you save thousands of dollars on interest payment. But remember that just because your neighbor is getting a refinance, you don’t necessarily have to, because your financial situation may be different than theirs. If you are comfortable with your current rate, you probably have no reason to get a refinance. If you try to get a refinance without considering the positives and negatives, you could land yourself in a financial mess.
If you are planning to get a refinance, you will definitely have several questions in your mind. Here, we answer common questions that most homeowners have about refinancing.
Q: What are the first things I need to consider before applying for a refinance?
A: Before applying for refinance, you should ask yourself why you feel the need to get a refinance. Are you underwater on your mortgage payment? If so, getting a refinance is perhaps the only viable solution before you. Are you trying to get lower rates? Once you have a clear understanding of your reasons to get a refinance, you should consider all aspects of refinancing. Remember that while refinancing may be a great option for another homeowner, it may not be the same for you.
Q: I want to refinance. Will my credit rating affect my eligibility?
A: Yes, it will. Your credit score can affect your eligibility for refinance. If your score isn’t satisfactory, there are a few things you should do to improve it. You should, for example, avoid opening any new line of credit. You should also check your credit report.
Q: How can I ensure that I get the best refinance deal?
A: Getting the best refinance deal depends on your willingness to shop around. While comparing different mortgages, interest rates alone shouldn’t be your only consideration. You should also consider the costs and the quality of the service.
Q: What is no-cost refinancing?
A: This is a misleading term. All kinds of refinancing involve some fees and costs. These are usually called closing costs. Some lenders will ask you to bring a signed check to the closing table while some others will allow you to add the closing costs to your principal. In this case, you will have to pay interest on it. Closing costs can account for about 1 percent of your principal amount.
Q: What is a cash-out refinancing?
A: The value of your home may have appreciated over the years. In this case, you will be able to refinance the property at its current market value. This allows you to walk away with a lump sum amount.
Refinancing is all about getting a new mortgage with lower rates. However, a thorough understanding of the process is absolutely essential to get the best deal.