Having a mortgage can be an arduous task at times. With constantly fluctuating market values and interest rates, it can be difficult to effectively evaluate what you should be paying for your mortgage compared to what you are currently paying. Nobody wants to pay more than what they have to. Therefore, being able to refinance your mortgage can be a beneficial and economical way to not only reduce your monthly bills, but ensure that you are getting the best interest rates possible. However, there are a number of factors to consider before deciding to refinance.
Adjusting the Interest Rates
The general rule of thumb when refinancing your mortgage is to do so only when you can reduce your interest rate by at least 1 percent more than your current rate. Anything less than 1 percent likely won’t be worth the refinancing costs or the effort in the long run. That said, depending on your mortgage terms and financial situation, some professionals may even suggest a refinance when interest rates are ½ to 5/8 percent less than your current rates. Getting an appraisal on your property will assist you in making that decision, although they are a double-edged sword. Appraisals can help borrowers achieve a lower rate and avoid paying private mortgage insurance, but they can also potentially reduce the possibility of refinance approval.
Have a High Credit Rating
To ensure that refinancing your mortgage is a cost-effective procedure, you must first make sure that your history of paying off credit cards in time is approved. Most banks won’t accept anything less than a 680 credit rating, and there are usually additional fees for anything less. If your credit rating is low, you must make amends with the bank by paying existing and future bills on time as well as outstanding debts before requesting a mortgage refinance.
Ensure Savings are Greater than Costs
Refinancing your mortgage doesn’t remove existing debts or alter the value of the property, it simply negotiates the pay structure on your mortgage. Often, this involves extending your mortgage for a lower monthly rate. Therefore, it is only beneficial to refinance your mortgage when you plan on staying in your property for an extended period of time. This is going to involve crunching numbers, but if you find that the expected savings from refinancing do not exceed the costs of refinancing, then it is not a worthwhile endeavor. However, as previously mentioned, if the current interest rates are reduced by more than 1 percent and your credit rating is adequate, the costs of refinancing will not be as high.
In Short: Timing, Calculation and Advice
Refinancing your mortgage involves calculation, good timing, and sometimes professional advice. Very few actually qualify for refinancing, as it requires possessing a reputable credit rating and smaller debts. Although it can be difficult to acquire, it can ultimately save large sums of money over a period of time and will ensure that you are not paying more towards your mortgage than you have to. Just remember to keep the aforementioned tips in mind and you’ll be well on your way to achieving a better rate on your home.