Refinancing your Adjustable Rate Mortgage to a fixed rate loan has the advantage of providing a monthly payment amount that you can plan your budget around. Whether or not refinancing is right for you depends on how high interest rates rise, there are also expenses to factor into your cost and savings analysis. Here are several tips to help you determine if mortgage refinancing is right for you.
Determine the Costs of Mortgage Refinancing
Before you commit to refinancing your mortgage, determine your out-of-pocket costs for the new loan. When refinancing your mortgage loan you can expect to pay between 1-3% of the loan amount, not including any points you pay. The longer you plan on staying in your home the easier it will be to recoup your expenses from mortgage refinancing. If you are nearing the end of your current loan’s term you might be better off staying with your current mortgage loan.
Converting your adjustable rate loan to a fixed interest rate mortgage and locking in the payment amount is the primary benefit of refinancing your mortgage. With a fixed payment amount you will be able to plan your budget around your monthly payment and significantly reduce your risk of foreclosure. Remember that mortgage refinancing is not without risks. If you are not careful when researching mortgage offers you run the risk of overpaying for the new loan and losing any potential savings. Additionally, after you refinance your mortgage you will be starting the amortization schedule on your loan from the beginning. This means the majority of your payment will be applied to interest in the early months of your loan.
Choosing the Best Mortgage Refinancing Lender
Comparison shopping for the best lender will save you thousands of dollars when mortgage refinancing. Choosing the right type of lender is an important aspect of refinancing your loan. As a rule you should never refinance your mortgage with a bank. Banks are exempt from disclosure laws that protect homeowners from predatory lending practices. Your banker is not required to disclose their markup or profit margins on any of their mortgage products. By applying for a mortgage from your bank you risk overpaying for the loan without ever knowing. You can learn more about your mortgage refinancing options, including costly homeowner mistakes to avoid by registering for our free mortgage guidebook: “Five Things You Need to Know Before Refinancing Your Mortgage.”