“A house is built by wisdom and becomes strong through good sense.” (Proverbs 24:3, NLT)
Interest rates are low, and it’s a great time to shop for a better deal on your mortgage! By refinancing your mortgage, you may be able to reduce the amount you pay monthly. You may also be able to get lower rates or cash out some of your house’s equity. To find out whether refinancing will work for you, you’ll need to ask a few important questions.
1. Will refinancing save you money?
This is probably the first, and most important, question to ask. Refinancing can save you money on your interest or on your loan payments. However, refinancing may affect your tax deduction. Try using a mortgage calculator to help you determine how much you can save.
2. How’s your credit score?
If your credit score has stayed the same or improved since you got your first mortgage, you might see a big improvement in rate for your refinance. Still don’t know your credit score? Get your credit report for free from one of the nationwide credit reporting bureaus, and make sure to correct any errors you see.
3. Is your paperwork ready?
Now that you have your credit report, gather up your last three months’ bank statements. You’ll also need recent pay stubs, 2 years’ worth of W-2 forms, and insurance information. Lenders will have some paperwork for you to fill out as well.
4. Will the rate benefit be worth it?
Refinancing can help you to get a lower rate on your mortgage. But is it worth paying more in closing costs on the loan than you’ll get back in savings? A good rule of thumb is that refinancing should get you at least 1% less on your rate.
5. Will there be a pre-payment penalty?
Refinancing can make your loan term shorter if you want to get it paid off sooner. However, some loans have a pre-payment penalty if you pay the loan off early (often within 5-7 years.) Be sure to ask lenders if a pre-payment penalty applies.
Whatever your situation, being prepared can make your refinancing application much easier. If you have a clear list of goals and know the answers to these questions, you’ll be ahead of the game.
This article should not be considered legal, tax, or financial advice. You may wish to consult a tax or financial advisor about your individual financial situation. Christian Community Credit Union is an Equal Housing Lender.
