Things To Consider If You Want to Refinance Your Mortgage
Many people turn to mortgage refinancing to help lower the amount of their monthly expenditures. If you are considering joining their ranks, there are a few things to keep in mind before taking the plunge.
First and foremost, if you are serious about mortgage refinancing, make sure that your credit record is as spotless as possible. A bad credit history coupled with high outstanding credit card balances spells high risk to lenders and may discourage them from working with you. While it is true that one of the more popular reasons people look into mortgage refinancing is to pay off their credit card debt, carrying many cards with high balances throws up a red flag. You should also seriously consider your future housing plans. If you intend to sell your current home within the next few years or so, mortgage refinancing does not make good financial sense. Any real savings from mortgage refinancing will take at least two years to materialize, as your early savings from lower monthly payments are actually only repaying you for associated closing costs. However, if you plan to stay in your current home for the long haul, then mortgage refinancing does make good sense.
You can approach mortgage refinancing in a few ways. You could use mortgage refinancing to consolidate two mortgages into one to save money on multiple mortgage payments or to refinance your current loan with one bearing a lower interest rate, longer repayment term and higher principal balance than that of your current mortgage. Any excess funds resulting from a mortgage refinancing can go toward home improvements or paying down debt. This strategy reaps benefits at income tax time, as mortgage interest is tax deductible.
Keep in mind that, regardless of your intention for mortgage refinancing, the loan process is the same as it was when you were buying your home for the first time. The same upfront costs apply, and they will include credit check, loan qualification and rate lock in fees, fees for title update and review and title insurance premium, lender document preparation fees, discount points, prepaid interest, attorney fees for both the lender attorney and your attorney, and county clerk recording and filing fees. It will take you several months to repay yourself for these costs out of the savings realized by your mortgage refinancing.
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