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Things to Consider Before Refinancing

Michael Zorz

2022-02-04

When you have a low-interest rate, it makes sense to save yourself some money on your monthly mortgage payments by refinancing. By refinancing, or replacing that old loan with a new one, you may be able to increase your monthly cash flow and reduce the amount of time you spend making monthly payments. However, there are several things you should consider before refinancing your mortgage.

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Before Refinancing Your Mortgage

When refinancing, you will want to ask yourself these questions before signing any papers:

How much time do I have left on my current loan? 

If you are considering refinancing your home for the first time in 25 years, don't expect it to be a simple process. These days, lenders want to see that you have a good reason for refinancing a long-term mortgage and that your needs will be better met with a new loan.

Is my home's value substantially different from when I bought it? 

If you're trying to refinance because of an income change, an interest rate drop or a home price increase would be good reasons for refinancing. For most people, it can take at least six months of financing statements to receive the cash from the sale of your old house even with a traditional refinance.

Before refinancing you should understand that not all loans are alike and competitive rates vary depending on the type of loan you choose, LOC or term.

What is the current interest rate on my home?

Is it higher than what I would get if I refinanced? If it's less than one percent off your current rate and you have a perfect credit score and can document your income, you might want to look at all lending options before refinancing. If your home's value has changed since you bought it or if you have had substantial changes in income, the lender may need to underwrite the refinance and approve your application before they can give you a quote on the interest rate.

How much money is available for closing? Do I qualify for a second loan? If you are refinancing for the first time, you will need to make sure you have enough cash available for closing. Fees at closing include the appraisal fee, credit report fee, and title insurance premium. The good news is that by taking advantage of low rates through refinancing you can actually reduce your monthly debt payments without any change in your overall debt balance.

So, you might want to reconsider that refinance. If you only have a few more years on your current loan, it's probably not worth refinancing if the new loan is going to be for an amount higher than your balance right now. So before you go ahead with refinancing, take some time to do your homework and answer these questions.


Home Refinancing Check List

We hope we've given you some guidance and insight into the process of refinancing your mortgage. If you're considering refinancing, it's important to do a little homework first before jumping in head-first with any company or lender. Consider these questions when thinking about whether refinancing is right for you: 

 1. What type of loan am I currently on? 

2. How much time do I have left on my current home loan? 

3. Is my house worth more than what I paid for it originally? 

4. What is the interest rate on my home now vs if I were to get a new one through refinancing? 

5. Do I qualify for another loan besides just a mortgage (like an auto)? 

6. And finally, will this increase in cash flow be enough to offset the costs of refinancing? 

7. Keep these things top of mind, and you'll be ready to make the right decision for your unique financial situation.


Conclusion

Refinancing can be a great way to get a lower interest rate on your mortgage, but it's important to consider all of the factors involved before you decide whether or not to go through with it. Our guide has outlined some of the questions you should ask yourself before refinancing, as well as some things to keep in mind when comparing rates and terms from different lenders. If you're still unsure after reading this article, please reach out for more advice. We're happy to help!