If you already own a home and aren’t looking to move you probably aren’t paying much (if any) attention to home mortgage rates right now. But you should be! Why? Mortgage rates are low, and as a homeowner, you have the opportunity to save thousands on home-mortgage-refinancing. However, this opportunity won’t last long… rates have slowly been increasing since early 2013 and while rates on a 30 year fixed mortgage are still attractive (approximately 3.84% as of May 2015), they are inching northward. So, what are you waiting for? Capitalize on these low rates and save your family thousands with home-mortgage-refinancing.
So, where should we begin? How about with what exactly home-mortgage-refinancing is. Home-mortgage-refinancing is essentially taking out a new mortgage on your house.
Why do people decide to do home-mortgage-refinancing?
People typically do this in order to:
- Reduce their monthly payments
- Lower their interest rate
- Obtain cash for a large purchase or project (ex. remodeling)
In addition, home refinancing can allow you to switch mortgage companies if there is one you prefer versus who your current mortgage is with.
When do people decide to do home-mortgage-refinancing?
Most people opt to refinance when they have equity in their home. Equity is the difference between the amount you owe on your mortgage and how much your home is worth. Particularly low interest rates (like what we’ve been experiencing since 2013) can also persuade people to refinance.
Is home-mortgage-refinancing right for you?
As mentioned above, there are a couple of main reasons individuals decide to take advantage of home-mortgage-refinancing. One of those reasons is to obtain a lower interest rate. A lower interest rate can greatly impact what you pay each month thereby saving your family hundreds or even thousands of dollars a year.
If you’re trying to decide if home-mortgage-refinancing will indeed save you money, there are many helpful calculators and tools online. For example, Open Doors Housing from the University of Illinois offers a slew of helpful resources.
Other than saving money, another major reason individuals decide that home-mortgage-refinancing is right for them is to obtain money. When individuals have a large purchase to make (ex. cars), debt to pay off (ex. medical bills), or a project (ex. remodeling a kitchen) they can obtain cash by refinancing and taking equity out of their home.
What should I know before home-mortgage-refinancing?
While home-mortgage-refinancing sounds like an excellent idea (and for some people it most definitely is), it isn’t for everyone and there are risks involved. For example, you may incur penalties for paying down your existing mortgage with your line of home equity credit. Go through your existing mortgage to look for fees and penalties like these as they may amount to thousands of dollars. If your existing mortgage will saddle you with fees and penalties, before finalizing an agreement for home-mortgage-refinancing, make sure it covers the penalties and is still worth your time and effort.
Fees associated with your existing mortgage aren’t all that you need to look out for. There are fees associated with home-mortgage-refinancing. For example, you will probably want to pay an attorney to go over the paperwork and to ensure you’re getting the best possible deal. There can also be bank fees such as an application fee. Additional fees may include:
- Title insurance and title search – This typically refers to the cost of a policy that will cover any loss caused by discrepancies found in the home’s title and the cost to review public records in order to verify ownership.
- Points and fees incurred in loan origination – Lenders charge fees to cover their work in preparing and evaluating a loan. Points are prepaid financial fees imposed at closing to increase what the lender makes on the loan outside of the agreed upon interest rate. One point equals one percent of the loan amount.
Tip: Avoid at least some bank fees (ex. application fee) by shopping around, negotiating with your preferred bank, or waiting for them to offer a free refinancing special.
What’s the next step with home-mortgage-refinancing?
If you are interested in home-mortgage-refinancing the next step would be to evaluate your existing mortgage and contact your bank or lender. They would be able to tell you want options are available including if there are any specials that would allow you to avoid some of those pesky fees.
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Disclaimer: This article is not financial advice. It is merely for informational purposes. Please consult with a financial professional before making an major financial changes.
Thanks, Mortgage Calculator!