If you’re asking the question Should I Refinance My Mortgage, there are several things you need to know to make an informed decision and avoid common mortgage mistakes. The internet is a great resource when it comes to researching the best refinance rates; however, there is a lot of bad advice when it comes to answering the question “Should I Refinance My Mortgage.” Here are several tips before you refi to help you answer that nagging question.
Should I Refinance My Mortgage Now?
Conventional wisdom from the days of overpriced financial advisors states that you should never refinance your home loan unless your new interest rate is exactly two percent lower than the best refinance rates you’re qualifying. This is ludicrous on several different levels. First of all there are several perfectly good reasons for mortgage refinancing that don’t always result in a lower amount.
Secondly, the two percent rule doesn’t take into consideration how much it’s going to cost you to get the home loan (lender and loan origination fees) or how long you plan on staying in your home. There is a better way to answer the question Should I Refinance My Mortgage that takes all of this into consideration.
A Better Way to Refinance Your Home Loan
Bad mortgage refinancing advice aside, the best way to answer the question “Should I Refinance My Mortgage” is on a cost/savings basis. Assuming that your goal for mortgage refinancing is to get today’s lowest refinance rates to lower your monthly payments this isn’t hard to do. Once you’ve completed mortgage rate shopping and have collected several different quotes start by adding up all the closing costs including the loan origination fee. Divide your total costs by the amount you’ll be saving each month and you’ll know the number of months it’s going to take to recoup your closing costs and break even.
The reason recouping your expenses is so important is that you have to break even before realizing any benefit from your mortgage refi. The more you pay at closing, including lender junk fees, the longer it’s going to take to reach the point where you’re benefiting. Avoid paying lender junk fees at closing on your refi and you’ll benefit much sooner.
About Mortgage Rate Shopping
Unless you’ve been living on under a rock you’ve heard that the financial meltdown and debt fiasco in the United States has resulted in historically low refinance rates, below four percent in some cases. You might be discouraged to find that the refinance rate quotes you get are much higher than the mortgage rates you’re hearing about on the news. What gives? Why can’t you take advantage of the same interest rates your neighbors are bragging about?
Your Credit Score Is Key
You want today’s best refinance rates and to get them you need to focus on your credit score even before answering the question “Should I Refinance My Mortgage.” The reason your credit score is so important is that lenders use this number to asses your risk as a borrower. This chart shows the effect this number has on your refinance rates and the total cost of borrowing for your home loan.
There are steps you can take to improve your credit score to make sure it’s not keeping you from today’s best refinance rates. Checking your credit reports for errors while avoiding opening new accounts will go a long way to make sure your credit score is where it needs to be before mortgage refinancing.
Get Instant Access
You can learn more about getting the lowest refinance rates while avoiding unnecessary fees once you’ve answered the question “Should I Refinance My Mortgage” by checking out my free Underground Mortgage Videos.
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My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
