Typically, a homeowner will refinance his or her mortgage to reduce its interest rate. Therefore, the first thing that you need to do is find out the average interest rate being offered by lenders today. If that number is higher than your current rate, you should hold off on refinancing. However, if that number is lower than your current rate, you may want to look closer into getting a new loan.
Could You Qualify for a Lower Rate?
Just because a lender is advertising a lower rate doesn’t mean that you would qualify for it. If you have poor credit or missed payments in the past, a lender may not approve your request to refinance. Instead of trying to renegotiate your loan, you may want to work on improving your credit score with an eye on refinancing in the next six to 12 months.
Do You Have to Pay Closing Costs?
When you buy a home, you generally have to pay closing costs such as loan origination fees, document fees and property taxes. You may also have to pay your real estate agent as well as pay for an attorney. When you refinance, a lender may be willing to reduce or waive some or all of the closing costs. Before you submit an application, it may be a good idea to use a mortgage calculator to determine how much you could save after these costs are factored in.
Do You Have a Variable Rate Mortgage?
If you have a variable rate mortgage, it may be a good idea to look into refinancing into a fixed-rate loan as soon as possible. This allows you to lock yourself into a predictable monthly payment until you pay off the loan, sell the house or choose to refinance again in the future. However, this may only make sense if you plan on staying in the home after the rate is subject to change.
It is important that you are able to keep your housing payment to a reasonable percentage of your after-tax pay. If you feel like you could find better mortgage terms from another lender, you are free to pursue them in an effort to reduce your monthly payment and help you build more equity in your home in less time. More information can be found at WFCU Credit Union.