As interest rates get lower and homeowners look for a way to save money, mortgage refinancing becomes a real possibility. However, different financial situations and goals will dictate which direction a homeowner should take when getting a home loan refinance, or if they should get one at all. Here are some questions a homeowner should ask when getting a home mortgage refinancing.
- What is your financial situation and what are your goals?
Has your credit gotten worse since you bought your home? Did the value of your home actually decrease due to a bad housing market? Do you make more income than you initially got your home loan? Are you interested in lowering the monthly payments, or trying to pay off the mortgage sooner? These are some of the questions that homeowners need to ask themselves before they do anything. The answers to these questions will help narrow down the options and help ensure that the homeowner makes the best decision possible.
- Would you have to purchase private mortgage insurance?
Homeowners who want to get cash out of the refinancing from their homes equity, or people who have seen their home lose value, may need to purchase PMI (Private Mortgage Insurance). Typically this is needed when a homes loan to value ratio is 80% or more and will add to the costs of home loan refinancing.
- What are the terms of the new loan?
Are the interest rates available now better than the rates you have now? While there is more home loan refinancing than interest rates alone, they are a major factor in deciding if it is the right decision to make. Also, be sure to understand the terms of the loan. How long will it take to pay off? Is there a balloon payment? Is it an adjusted rate mortgage (ARM) or a fixed rate mortgage?
- What are the costs and fees?
Whenever you refinance a mortgage, their will be costs. The places that claim to be low or no cost make the difference up in points on the home loan or the overall interest rates. Lawyer fees, document fees, and other closing costs can cost up to 2% of the loans total value. While these fees can typically be overcome by a proper refinancing, they may make it not worth it for some people.
While these are not all the questions that may need to be asked, it is a very good start for any homeowner who is looking into getting a mortgage refinancing. With home loan interest rates as low as they are now, many people can save a lot of money if they take advantage and properly refinance. It may not be a good decision for all, and it might not cure someones financial problems, it is a good start to save money on the most expensive monthly bill that most people have.