Mortgage refinancing is a great way to attempt to change your loan terms, lower your interest rate and save money on your mortgage payments over time. When done correctly and at the right time, refinancing your mortgage can save you thousands of dollars. On the other hand, it may damage your credit and cost you more money.
This is why it's so important to educate yourself about mortgage refinancing and ask questions so you can make an informed decision. Here are some of the top mortgage refinance questions answered and clarified.
Is It Cheaper to Refinance with My Current Lender?
At first, it may seem ideal to just refinance with your current lender. Your current lender might make several expenses cheaper for you like title search, property appraisal and other costs. However, these types of benefits are not promised and you should always shop around for a better deal first.
The market may have better rates than what your current lender is able to provide. You can take advantage of being able to shop around for rates and compare different lenders or use our free mortgage refinance calculator to see if you can save money by refinancing your current loan.
How Can I Make Sure I'll Break Even or Come Out Ahead?
Everyone wants to save money on a refinance and have it work in their favor. Since it's possible to actually lose money by refinancing, it's important to consider the costs associated with refinancing along with the risks. You will most likely have to pay some money upfront to refinance, so you should be financially prepared and have enough savings to move forward with the process comfortably.
No one can predict the future and how your financial situation will be in the months to come, but you can help improve your chances of breaking even and saving some money by staying updated with the market and when rates are low, increasing your credit score and/or your income, along with increasing the equity in your home.
How Much Equity Do I Need to Qualify?
You usually need to have around 85 percent loan-to-value ratio in order to qualify for a mortgage refinance loan. It's important to determine the value of your home and make sure it's not declining if you want to refinance your loan.
If you bought your home just a few years ago and put a smaller down payment down, you may not have enough equity, but you should always check with an appraiser and get your home examined.
Does My Credit Have to be Perfect?
You don't necessarily need perfect credit to successfully refinance your mortgage. The better your credit is, though, the lower your interest rate will probably be. If your credit is good or average, you might qualify for a refinanced loan, but you will be offered a higher interest rate. If you aren't sure what your credit score is, you can use our free tool to check your credit score.
It's best to fix any negative remarks or issues on your credit report and increase your score before applying to make the process run smoother and receive the best outcome. Lenders look at applicants with poor credit scores as risky investments, so you should make sure your credit is good first and foremost to avoid any unwanted hassles.
Will I Still Have to Pay Mortgage Taxes if I Refinance and Why?
If you are refinancing with a new lender, you will definitely have to continue paying mortgage taxes. Mortgage tax is generally charged on all new mortgages by local and state governments, and in most cases, refinancing will be treated just like obtaining a new mortgage.
On the other hand, if you refinance with your current lender, they may be able to treat the refinance as a modification to your existing mortgage and you might have to just pay a modification.
Refinancing your mortgage can be seem confusing at first, but the more you know, the easier the process will become. If you think it may be time to refinance, first determine if you can afford it, then check the equity in your home along with your credit and shop around for the best refinance options.