Home Refinancing Tips

Many homeowners are looking to take advantage of historically low interest rates by refinancing their current mortgage. Refinances can be a great way to lower your monthly payment or shorten your loan term.

However, it’s important to keep a few things in mind when exploring your refinancing options. Below are a few tips to keep you on the right track when thinking about refinancing your mortgage:

Know how long you’ll be in your home

When do you plan to move? Your monthly payment may go down with a refinance, but whether that saves you money in the long run depends on how long it takes to make back the money you spent for the new loan. When you start the new loan, your first payments go almost exclusively to interest. If you sell the house after two years, you save money by making lower payments for two years, but you may actually owe more on the loan than you did in the first place. A mortgage professional can help you calculate your breakeven point and decide if a refinance is right for you.

Be careful with advertisements

Mortgage rates can vary greatly from lender to lender. A lot of the initial information you receive about refinancing will probably come from advertisements. Although this information can be helpful, keep in mind that these are marketing materials--the ads and mailings are designed to make the mortgage look as attractive as possible. These advertisements may play up low initial interest rates and monthly payments, without emphasizing that those rates and payments could increase substantially later. Be sure to get all the facts and make sure any offers you consider meet your financial needs.
Tip: If there is a big difference between the initial interest rate and the APR listed in the ad, it may mean that there are high fees associated with the loan.

Review your credit before you apply

Obtain a copy of your credit report from a Credit Reporting Agency before beginning the refinancing process. You will want to give yourself ample time to clear up any credit mistakes and have your best possible score for the qualification process. The higher you credit score is, the more likely you are to receive the interest rate and mortgage that you want.

The information above is intended as general guidance. All loans are subject to credit approval and loan program guidelines. If you are a servicemember on active duty, prior to seeking a refinance of your existing loan, consult your legal advisor regarding the loss of any benefits you are entitled to under the Servicemembers Civil Relief Act or applicable state law.