If you are considering refinancing your home, you are probably trying to save money as a result. While interest rates are currently low, that alone doesn't always guarantee that you will save money on a mortgage refinance. There are many costs and fees associated with refinancing your mortgage.
Here are five helpful ways to save money when you refinance.
Obtain Several Different Quotes
It's no secret that you should be well-informed and confident with your choice before making a decision about who you will refinance your mortgage with. This is why it's so important to shop around and thoroughly and explore your options when looking for a new lender that will help you save money on a new loan.
Talk to friends and family for referrals, call your bank or current lender, and compare offers from several other lenders online by using a refinance calculator or comparison tool.
Switch to a Shorter Term Loan
When you have a longer term, your payments are often lower, but over time you will pay more in interest. If you switch from a 30-year term to a 15-year term, you can save money in interest in addition to receiving a better rate.
A shorter loan term will also help motivate you to pay off your mortgage faster so you can end up owning your home sooner and doing other things with your money.
Pay Your Closing Costs Upfront
Closing costs can easily add up to thousands of dollars. If you add those costs to the loan total, you will end up paying more per month and over time due to interest. You may be able to ask your lender for 'no cost' refinancing, but that will either make your interest rate higher or simply add the closing costs to your total loan amount.
It's best to pay your closing costs upfront and save money down the road. As you are planning your mortgage refinance, start saving up money for miscellaneous costs and fees so you won't have to finance them with your loan. Keeping a healthy emergency fund for housing related expenses and preparing to refinance from a financial standpoint will place you in a better position with more options and less to worry about.
Switch From an Adjustable-Rate to a Fixed-Rate Mortgage
With an adjustable-rate mortgage, your monthly payments fluctuate as market interest rates increase and decrease. When the market is good and rates are low, you'll enjoy the benefits of a lower payment. But when interest rates increase, your payments will increase as well. This can cause some uncertainty over time since your payment might jump up unexpectedly and at a bad time.
If you happen to have an adjustable rate, you can switch to a fixed rate for more stability when you refinance your mortgage. Having a fixed rate allows you to lock in one consistent loan rate (preferably when rates are low) and make steady payments over the term of your loan.
Get Rid of Private Mortgage Insurance
When you put less than 20 percent down as a down payment when taking out a mortgage, you will be required to pay private mortgage insurance or PMI in addition to your monthly payment.
PMI protects lenders from borrowers with a higher loan default risk. If you have been paying on your mortgage for several years now and have PMI, you can request to get rid of it when you refinance your home.
Depending on how much the balance on your loan has decreased and how much the value of the home has increased, you may be able to cancel your PMI when you refinance with your current lender or a new lender. Getting rid of that extra payment will save you a sizeable amount of money each month so that more of your money can go toward the actual mortgage balance.
Refinancing your mortgage can be a tedious process, but it doesn't have to be a costly one. If refinancing makes sense to you at this time, see if you can save even more money right now and over time by doing some of these ideas mentioned above. You can get started by comparing rates and offers along with making sure you have some savings lined up for miscellaneous expenses.