Taking out a mortgage is an enormous financial decision and is something that will impact your finances for years, even decades. Over time changes in the market may mean lower interest rates. You may also find that you are in a better financial state than when you initially took out your mortgage. If this is the case for you, or if you want to tap into your home's equity, mortgage refinancing may be something to consider. Here are three things that you should do before you refinance your mortgage.
Make Sure It Makes Sense
While mortgage refinancing may seem like a fantastic option, it's not always the smartest move. Before you refinance, you need to make sure it's a decision that makes financial sense. If you are refinancing to get a lower interest rate, many experts recommend it only if you see at least a one percent reduction in your interest rate. Using your equity through refinancing can be a great way to consolidate debt; just make sure it's the most affordable option available for this purpose.
Check Your Equity
Another thing that you should do before you refinance your mortgage is to check how much equity you have in your home. Your home equity value is the ratio between how much you owe on your current mortgage and how much your home is worth. Keep in mind that market fluctuations can have a significant impact on this number. Many lenders prefer that you have at least 20 percent equity in your home before you refinance your home loan. While you can refinance a mortgage with equity in your home less than 20 percent, you will need to obtain private mortgage insurance.
Prepare For Refinancing Costs
While mortgage refinancing can be a very smart financial decision, it does come with a few costs. Loan origination fees, inspections, appraisals, and other costs add up. Mortgage refinancing costs usually amount to anywhere from two to six percent of the loan amount. You can pay these costs upfront in cash or roll them into your new loan. Before you refinance your mortgage, make sure you account for these costs.
If you plan to refinance your mortgage, there are a few things that you should do. First, make sure mortgage refinancing is the right option for achieving your financial goals. Second, make sure that you have enough equity built up in your home to make mortgage refinancing a viable option. There are also costs associated with mortgage refinancing, so make sure you prepare for these expenses ahead of time.
To learn more, contact companies like Choice Mortgage.