Quite a few people have asked me about refinancing lately which is not surprising considering the record low interest rates. Beyond the rate, people are looking for lower payments, a quicker payoff, or to cash out of a mortgage.
If you are interested in potentially refinancing your mortgage, here are 5 things you will want to do.
Your Credit Score
Your FICO credit score plays a large part in determining your potential interest rate. Usually, a FICO score between 750 and 800 will get you the best mortgage rates available. The farther away your score is below the mid 700‘s, the higher the interest rates will usually rise. If your FICO need a little help, you may want to focus on raising that up before attempting to refi.
Shop Around for the Best Rates
Home mortgage rates usually fall within a small range from one place to the next, they can vary. While a mall variance might not mean much over a few years, it certainly will add up over a 15 or 30 year mortgage. It’s important to compare mortgage rates before signing on the dotted line.
Consider the Fees
While you focus in on the refinance rate, don’t forget the additional costs. Banks will add additional costs to make additional money on the backend of the loan. The solution to know hat are the costs are is called a “Good Faith Estimate” which will itemize all of the costs of the loan for you.
While you will save with low loan fees, expect to bring 2-3K for closing fees and prepaid items such as insurance and taxes. Before you start the refi process, make sure you can afford to part this money up front.
As attractive as these lower interest rates are, try to refinance your mortgage repeatedly. This will add a lot of time and interest to your mortgage so that you will end up paying for your mortgage long after you retire. A possible solution is switch over to a 15-20 year mortgage.