If you’ve been contemplating the question should I refinance my mortgage there are several things you should know before jumping in. The refinance mortgage rates you get and the fees you pay all boil down to the answers you get for the question How Do I Refinance My Mortgage. Here are several tips before you refi with sound answers to the question How do I Refinance My Mortgage loan.
Should I Refinance My Mortgage?
Most people’s goal for mortgage refinancing is to lower their monthly payment. You can do this by taking advantage of today’s low refinance mortgage rates. Keep in mind that mortgage refinancing is going to cost you out-of-pocket at closing so the answer to the question Should I Refinance My Mortgage comes down to how long it’s going to take you to break even recouping your closing costs.
You can quickly figure this out once you know what your new payment will be by dividing your total expenses including the loan origination fee by the amount your mortgage payment is going down each month. This tells you the number of months it’s going to take to break even recouping your fees. The average homeowner refinances every four to five years; if you refinance before breaking even you’re losing money no matter how low your interest rate.
How do I Refinance My Mortgage Without Overpaying?
There are two important steps to getting the best deal when refinancing your mortgage. First, make sure your credit score isn’t preventing you from getting today’s lowest refinance mortgage rates. The interest rates you see advertised by lenders like Amerisave are based on having a lofty credit score of 820 or better. If your credit isn’t up to snuff your refinance rates could be much higher depending on the state of your credit reports. Invest a little time spring cleaning your credit and make sure the information is accurate. Also, try and pay down the balances on your credit cards as much as possible before applying for your mortgage refi.
Second, to get the best deal when mortgage refinancing make sure you’re not overpaying the loan origination fee or paying unnecessary discount points. The mortgage origination fee is paid to the company or broker arranging your refi and should not be more than one percent of your home loan amount. As for discount points, this is a sneaky tick used by even the best mortgage lenders to make their offers seem more attractive.
Refinance mortgage rates for a 30-year, fixed-rate home loan have been hovering just over four percent for almost seven weeks now; however, several lenders like Wells Fargo Refinance are advertising in the 3 percent range. How are they doing this? The fine print reveals the fees required to get their advertised rates. Assuming you have the necessary credit score to qualify all these mortgage refinancing offers require discount points.
A discount point is defined as the fee paid to lower your mortgage refinance rate by .25 percent and is equal to one percent of your home loan amount.
Should you pay discount points when mortgage refinancing? Probably not… Remember that getting a good deal on your home loan depends on more than just getting the lowest refinance rates. You want to break even on your out-of-pocket expenses as quickly as possible. Paying discount points at closing is just more cash out of your pocket for very little benefit.
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