Questions to Ask Your Mortgage Company Before Refinancing Your Home
If you are looking to refinance your loan on your home to lower monthly payments or for any other reason, it is vital to choose the best lender to suit your needs. It is essential to work with a mortgage broker you trust and to let them know as much about you and what your goals are as you can. Home mortgage refinancing can be very beneficial to some homeowners, but you must ask prospective mortgage brokers some important questions before making any decisions. Keep these questions in mind as you search for a lender.
What Additional Costs Are Involved in Refinancing?
When you got your initial mortgage, you had to pay closing costs. There are closing costs involved with a refinance as well. Usually these fees, charged by the lender, along with appraisals, title policy costs, escrow, pest inspections, and credit reports, can add up to 3% or more of the value of the loan. You need to be sure refinancing is still going to benefit you, despite these fees.
How Old Is Your Current Mortgage and Is There a Prepayment Penalty?
If you are well into paying off your current loan, it may not be wise to refinance. Adding years of interest payments to a home that may be paid off in five or ten years isn’t fiscally responsible. If your mortgage has a prepayment penalty, this will add even more fees to your closing costs. Be sure that a refinance is your best option.
How Long Do You Plan to Stay in the Home?
Those closing costs, fees, and the additional interest payments involved in a refinance will work against you if you aren’t planning to stay in the home much longer. You will want to be sure that you are at the very least breaking even on the loan before you sell your home.
What Is Your Credit Score?
Interest rates on loans are often dependent upon your credit score. If you are refinancing in an attempt to get a better interest rate, you will want to make sure you have an adequate credit rating. If it falls short of what you need, you will need to work on building it up a bit before refinancing.
Which Type of Loan is Best for You and What Are the Interest Rate and APR?
There are various types of loans available to suit different borrower needs. Ask your mortgage broker to explain interest only loans, negative amortization loans, fixed rate loans, and adjustable rate loans, so that you understand which is best for you. You will also want to have a full understanding of the interest rate, which is the percentage you will be paying on the loan, and the Annual Percentage Rate (APR), which includes fees and closing costs.
What Type of Refinance Is Best For You?
Your mortgage broker should be able to tell you all about cash-out refinances as well as rate and term refinances. These are the most common types of home mortgage refinancing. The cash-out option allows you to borrow extra cash against the equity in your home if you need it for other expenses.
How Much Equity Do You Have?
The more equity you have built up in your home, the less you will have to pay over the lifetime of your loan. For home mortgage refinancing, you want to know how much equity you have in your home, as 20% is generally required to escape having to pay private mortgage insurance.
How Will Your Monthly Payment Be Affected?
The most common reason for refinancing a home is to lower the monthly payment burden on the homeowner. Your mortgage broker should be able to explain to you how refinancing at a lower APR for the same term will be your best option. However, if other factors, such as the need to pay off other debts with home equity, are figured in, this may not be the case. This doesn’t mean that refinancing isn’t right for you. Everyone has different needs, and a good mortgage broker should be able to help you decide what is best for you.
Be prepared with these questions and any others you may have before meeting with a prospective lender. The more you know before signing for any loan, the more at ease you will feel with your decision. Our experienced and knowledgeable brokers at Sammamish Mortgage can lead you down the road to financial security and peace of mind. Please reach out to us today for help with your home mortgage refinancing.