Refinancing? Here’s What You Should Know

There are many reasons to refinance your mortgage: obtaining a better interest rate or a shorter term, converting to an adjustable-rate mortgage, or obtaining cash on hand to finance a large project or investment, to name a few. No matter what your motivation, here are a few tips to consider when preparing for the process.

  1. Before you begin to refinance, weigh your options.
    While refinancing can give you attractively low interest rates, the risk of putting your home on the line may not be worth it. Refinancing can be a great tool, but you want to make sure you are set up for success before jumping in.
  2. Know your credit score.
    As you may have heard before, your credit score is an integral factor in determining if you will get a loan and the rate you will receive for it. Before beginning the refinancing process or even detailed research, obtain a copy of your current credit report and your credit score history to make sure there are no errors in the report or possible negative outcomes you need to prepare for.
  3. Understand what your home is worth.
    To understand the amount of money you can borrow, you first need to know the value of your home. This is calculated after your home has undergone a certified appraisal. One way to start to ballpark the value before the appraisal is to look at other listings and sale prices of comparable buildings or houses in your area.
  4. Diligently keep your records in order.
    One of the most cumbersome parts of applying for a mortgage is the vast amount of paperwork involved in the process. This can range from things like proof of employment, to information about your income and assets. As a sound practice, start to collect documents like tax returns, pay stubs and bank statements, either in hard copy form or on your computer. Regardless of where you store them, compiling these documents so you can have them on hand when needed will accelerate the mortgage process.
  5. Weigh the pros and cons: Is a lower rate worth more money up front?
    If you plan to own your home or building long term and have enough cash on hand, one of the best things you can do for yourself is explore the possibility of paying “points” on your mortgage. A “point” is a sum of money which is equal to 1% of the loan amount. By “paying points” upfront, you can not only lower your interest rate—spending more of your monthly payments towards principal—but can also decrease the amount you pay each month. This can be a great way to set yourself up for the future if you have the cash on hand now.
  6. Know the details.
    There are a few key numbers that need your attention during this process:
  • Interest Rates
  • Points
  • Lender or Bank Fee (This will vary based on each lender and their commission charges)
  • General Fees (This should stay the same no matter who you work with as it includes things like cost of title and taxes at the state and local level)
  • Closing Costs

It is a good idea to lay all of these options out next to each other in a grid or spreadsheet format to compare all of your possible plans and weigh the full cost of each possible broker.

  1. Understand both the benefits and drawbacks of lengthening or shortening your mortgage.
    When you refinance a mortgage, the standard 30-year time frame gets started all over again no matter how close you are to completion. If taking on another 30 years of payments does not sound like a good option for you, consider taking on a shortened mortgage of 10, 15 or 20 years if you qualify.

With so many factors to consider and details to note, refinancing your mortgage can seem daunting at first. But, having a knowledgeable professional on your side to guide you through the process can help to alleviate some of the stress. If you are thinking about refinancing your mortgage or have additional questions about how the process works, please contact the experienced professionals at Powerhouse Title Group online or by phone at 443-299-6273.