5 questions to ask before you refinance

Now may be the perfect time for you to refinance your home, if you are seeking a lower mortgage rate than your current one. However, there is more to refinancing than the rate. Due to the fact that there is much for you to contemplate in terms of refinancing your home, it is imperative that you not only ask essential questions, but obtain very realistic answers. Below are five questions that need to be addressed when considering and/or shopping for a home refinance loan.

  1. What are your reasons for refinancing?
    Are you hoping to get out of or into an adjustable rate mortgage? Are you hoping to consolidate your debt into a single fixed rate mortgage? Do you simply want to lower your present interest rates? Having and knowing your refinancing goals will make it easier for you to shop around and achieve the best outcome.
  2. How long do you intend to stay in your home?
    This may not be the easiest question to answer, but you need to provide your best guess. If you intend to move in a couple of years, the cost of refinancing won’t be worth your while. This loan is typically suited to homeowners who intend to stay with their current property for several years.
  3. How much will a loan cost?
    You will receive a GFE (Good Faith Estimate) of closing costs when you apply for a loan. A GFE estimates all of the many closing costs you will need to pay and will provide you with an “estimated cash at closing”. This is an educated guess of how much you will need to pay to obtain the loan. Note: a GFE does not include all of the recurring and non-recurring refinancing costs that you may incur.
  4. How long will it take for you to recoup the closing costs from your monthly savings?
    Divide the upfront cost of all the closing costs by the amount of money you would save per month with the new interest rate. This will give you a general idea of how long (in months) it will take for you to break even. For instance, if it will take you four years to pay off the costs, but you think you will only stay in the home for another three years, refinancing won’t really be that much of a benefit to you.
  5. Is your credit score good enough to obtain the rate you want?
    The advertised interest rates that catch your eye are not necessarily the rates that will be available to you. What you are offered will depend on your credit rating. Unless you have flawless credit, you will likely be quoted a higher rate than what is advertised.

Be sure to take your refinance questions to mortgage experts and insurers, to obtain the answer you need.

Craig Reynolds is a seasoned entrepreneur and mortgage industry veteran with over 15 years experience in managing and loan consulting. Prided in establishing successful Mortgage Consulting teams that create and foster long-term relationships with clients. Contact www.alliedmortgagedirect.com.

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