Interest rates are gradually inching up and reports suggest that around 1 among 6 people who have mortgage loans will probably opt for a refinance in 2017. There are high chances that most will choose the wrong loan while refinancing their mortgages. It is not that refinancing is cheap as there are various penalties that are included in a mortgage refinance and therefore a mortgage owner should be careful enough while refinancing his loan so that he could crack the best deal which could help them save dollars.
Reports suggest that the interest rates are gradually starting to increase and many are predicting that the Federal Reserve should increase rates a bit later. During such a situation, if you’ve thought about opting for a mortgage refinance, you may have to think hard about it so that you could lock in a new rate in case you’re serious. Here are few tips and ideas that you can take into account if you wish to save your hard-earned money on a refinance.
1: Prep up your credit score
Way before you begin consulting lenders about a mortgage refinance, you should make sure you have a strong credit score. If you don’t have a good credit score, you should spend some time taking a close look at how you may increase your score. Start paying down high interest debt, start paying your bills on time and correct errors which you spot on your credit report. The interest rates for someone borrowing $200,000 through a 30 year old mortgage with a good credit score will be much less than someone who has a poor score. So, immediately opt for credit repair.
2: Choose the right mortgage with a perfect length
You must be thinking of which kind of mortgage loan you should take out in order to replace the previous one. While considering this, make sure you think the time through which you want your mortgage loan to last. Majority opt for 30 year mortgage loans while 15 year mortgage loans are better with higher payments but lower rates. You can also get a 20 year loan which has features that are common to both 15 and 30 year loans. However, the best is to opt for a shorter term loan which matches with your needs.
3: Try and pay more
While you go through the pre-approval process and you’re approved for a new loan, ensure it won’t penalize you for making pre-payments towards your principal amount. This way you can save enough money by paying much more than what you require paying each month. The more you save before taking out a mortgage loan, the better it is for you for grabbing low rates.
4: Don’t opt for no-cost refinancing
There are costs that are always associated with refinancing. There are closing costs associated with original mortgage which you may have to either pay in advanced or they will be attached to the entire loan amount. This can however boost your interest rate. It is best to pay the costs while taking out the loan so that you don’t have to pay them later. However, if you aren’t planning to stay in the home for a long time now, it is better to include the closing costs within the loan.
5: Take into account the paying points
You will be able to reduce the interest rates by paying valuable points. If you don’t know what a point is, it is 1% of your loan value and hence if you’re borrowing $200,000, one point would be $2000. The interest rate of the loan can be reduced by around 0.25% and this can translate into pretty good savings. However, you just have to take into account that you’re staying in your home for a long enough time to break even.
Therefore, if you’re about to refinance your mortgage loan, you should take into account the above mentioned points. Try to consider all the points given here so that you can make the right calculations and thereby help save money on a potential refinance loan. Did you consider how you’re going to spend the money that you saved? Make sure you spend it in the best possible manner.