5 Things to Consider When Contemplating a Mortgage Refinance


Mortgage payments comprise one of the most significant expenses in an individual’s monthly expenditures. Over time, the interest payments on your mortgage can add thousands of dollars to the price you pay for your home. Here are some things to take into consideration when contemplating refinancing the mortgage on your home. See Top Mortgage Rates.
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5. Whether Mortgage Rates Have Gone Down

When interest rates fall, it may be beneficial to refinance the loan on your home. According to Lending Tree, rate and term refinancing changes the interest rate and term on the remainder of a current mortgage without adding any additional money to the loan. Rate and term refinancing allows you to change either the interest rate on your loan or the length of the term on your loan. In general, it may be beneficial to refinance to a lower interest rate if the new interest rate is one or two percent below your current rate.

4. Whether Your Home Has Increased in Value

If your home has increased in value and you are looking for extra cash, you may want to consider cash-out refinancing. In this situation, you may be able to renegotiate a mortgage for more than you currently owe on your house. The excess is paid out in cash, which you can then use to pay off higher-interest debts such as credit card debt. According to Bank of America, cash-out refinancing differs from a home equity loan in that you end up with one new loan rather than a second mortgage.

3. Where Your Credit Score Stands

Before you investigate refinancing your mortgage, check into your current credit score. The higher your credit score rating, the lower the interest rate a lender may be willing to give you. FICO lists a credit score of 670-739 as good. Meanwhile, a score of 740-799 is very good, and a score of over 800 is exceptional. According to Bankrate, a credit score of 680-699 may mean an interest rate of 4.569%. Meanwhile, a score of 760-850 could garner you an interest rate of 4.17%. On a 30-year fixed loan of $200,000, the lower interest rate could save you over $16,000 in interest.
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2. Whether Your Adjustable-Rate Mortgage Is About to Increase

If your current mortgage is an adjustable-rate mortgage and interest rates are on the rise, you may want to consider refinancing to a fixed mortgage rate. While switching to a fixed-rate mortgage, may be beneficial, Magnify Money cautions you to keep in mind possible downsides to refinancing. The disadvantages may include high upfront costs, higher monthly payments, and negligible changes in interest rates. Before making the switch, calculate your break-even point. The break-even point is the amount of time it will take to make the upfront costs and higher payments worth the lower interest rate.

1. Whether Refinance Fees Make It Worthwhile

Refinancing your home equates to closing out one mortgage and opening a new one. When considering refinancing, take into account the costs and fees associated with opening a new mortgage. Trulia lists several expenses related to refinancing. According to the Trulia website, the mortgage application fee alone may cost between $250 to $500. Furthermore, loan origination and document fees may run about 1% of the value of your loan. Additional costs may include an appraisal report, flood certification, title search and insurance, attorney fees, recording fees, and amortization. You may find that refinancing your mortgage can cost several thousand dollars.
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