Refinancing Tips for Your Home to Save You Money
Refinancing your mortgage might save you big on your monthly costs. When you choose to refinance a mortgage, you essentially pay off an existing loan and replace it with a new one. Why do this in the first place? Often, you’ll find a better interest rate for your mortgage and decide to switch providers or to change the terms of your mortgage to something that better suits your financial needs.
However, refinancing isn’t always a great idea. It might cost you up to 6% of your loan’s principle, not to mention any additional application fees. However, if done carefully, you can save big not only in the short term but also in the long term. Here are the best refinancing tips for your home to save you money.
Why Choose to Refinance Your Home?
First, let’s examine the reasons why you might choose to refinance your home. Of course, you’ll choose to do this if it saves you money, but it’s not always that black and white. There are pitfalls and benefits of all the motivations for refinancing. It’s up to the current homeowner to decide if the advantages out-way the drawbacks.
- Lower Interest Rate – The most common reason to refinance a mortgage is to lower the interest rate. Most financial experts say that anything up to 1% savings is reason enough to refinance. Not only will this savings help you save on your monthly payment, but it increases the rate at which you build home equity.
- Shorter Loan Term – With a lower interest rate often comes the ability to change the term of your loan. This could make a big difference in the time it takes to fully pay for your home.
- Switching Between Adjustable-Rate to Fixed-Rate – Finally, many people switch between an adjustable-rate mortgage and a fixed-rate mortgage depending on the best deal.
How to Maximize Savings When Refinancing
Now that you understand when it makes sense to consider a mortgage refinance, let’s talk about how to actually maximize your savings. First, you need a plan. Clearly write down just how much you’re spending on your mortgage each month and how much longer you’ll be in your current loan agreement. Knowing your current situation will help with comparing your new options.
What’s your goal with refinancing? Do you want to pay off your mortgage faster? Do you want to spend less each month? In general, a shorter term loan will bring a higher monthly payment, so keep in mind your goals when starting your search.
Next, shop mortgage lenders. No two mortgages are the same, and you’ll discover that interest rates change depending on the lender. Also, don’t forget to calculate the added costs of appraisal and closing fees. These can add several hundreds of dollars to the cost of refinancing.
Finally, consider choosing a fixed-rate mortgage. If you currently have an adjustable-rate mortgage, you might not be comfortable with the fluctuations in interest. With a fixed-rate loan, you know exactly what to expect in the coming years so you don’t have to worry about rising costs in the future.
Are you Ready to Refinance?
Refinancing your home is a big decision, but one that has the potential to save you big. As long as you’re careful throughout the process, and you learn your different options inside and out, you can make a change for the better in your mortgage.
If you’re considering a mortgage refinance for any of the reasons above, make sure you’re maximizing your savings. Understand your goals before you start your search so you’re in the driver’s seat. From there, choose carefully to know exactly what you’re getting into.