Answering the question “Should I Refinance” can be difficult and the Internet is littered with bad mortgage advice. If you’ve been shopping for mortgage refinance rates you might be disappointed to find that the interest rates you’re being quoted are much higher than what lenders are advertising. Here are several tips to help you answer the question should I refinance and avoid paying unnecessary fees in the process.
Should I Refinance My Mortgage?
If you’re looking for the best way how to refinance your home, answering the question “Should I Refinance” could save you from an expensive mistake. Many financial advisors peddle bad advice to their clients in what is known as the “two percent rule” of mortgage refinancing. This rule simply states that you should not refinance unless your new refinance mortgage rates are two percent less than what you’re currently paying. This is bad advice for answering the question should I refinance for several reasons.
Instead of relying on a blanket two percent rule, it makes more sense to base your answer to the question should I refinance on a cost vs. savings basis. You can do this by adding up all of the fees you’ll be required to pay at closing and dividing by the amount you’re saving each month. Here’s an example:
Suppose your closing costs will total $5000 including the loan origination fee. Your mortgage payment will go down $200 a month so dividing $5,000 by the $200 you’re saving results in 25 months, meaning it will take just over two years to recoup your out-of-pocket expenses.
Lower Your Refinance Mortgage Rates
Mortgage lenders engage in deceptive advertising when quoting mortgage refinance rates. They advertise interest rates based on having a credit score of 780 or better. If your credit score is less than what they’re using for the advertised quotes, your refinance mortgage rates will be quoted higher. Here’s an illustration to demonstrate how your credit score affects the Annual Percentage Rate you’ll pay on your home loan:
Before applying for mortgage refinancing it’s important to check your credit reports for mistakes. You can get free copy of your credit reports by visiting the website AnnualCreditReport.com. If you find errors you’ll need to dispute them with the individual credit bureaus. There are steps you take to ensure your credit score is as high as possible for your mortgage refi. First, avoid opening new credit accounts for at least 90 days before applying. Second, pay down the balances on your credit cards as much as possible and avoid making any of your payments late.
You can learn more about getting today’s lowest mortgage refinance rates after answering the question, should I refinance by checking out my free Underground Mortgage Videos.