If you are looking for a way to save money and trim your monthly expenses, it makes sense to focus on the largest numbers. If you are a homeowner, chances are the biggest monthly number is your mortgage payment, and reducing that amount could be very good for your family finances.
Refinancing your mortgage can be a great way to put some wiggle room in your budget, so you can stretch your paycheck, pay down debt and enhance your financial position. But before you start the refinancing process, you need to ask yourself these critical questions.
Are Rates Significantly Lower Than When You Bought Your Home?
The interest rate is obviously the most critical factor to consider when contemplating a mortgage refinance. If rates are the same as when you bought your home, refinancing will obviously not save you any money.
Even if rates are slightly lower than they were before, a mortgage refinance may not make sense. You could end up with high closing costs that eat up most of the savings, reducing the impact of the deal and leaving you in a similar financial situation.
If, however, interest rates have fallen sharply, it may be time to refinance your mortgage. If rates are one percent lower or more, refinancing the mortgage might be worth it.
How Good (or Bad) is Your Credit?
No matter how favorable mortgage rates may be, you will not qualify for them if your credit is bad. Before you even think about refinancing your mortgage, you need to check your credit report and credit score.
The higher your credit score, the easier it will be to qualify for the lowest mortgage rates, increasing the appeal of refinancing and saving you more money in the process. If your credit score is lower than it should be, paying down other debt, removing erroneous entries on your credit report, and being diligent about bill payment can all help you boost it, so you can get the best rate possible and save the most amount of money.
Will You Be Staying Put?
Getting a great mortgage rate on your refinancing deal is great, but the savings will not be as great if you end up moving in the next couple years. Before you sign up for a refinancing deal, think about your future plans and the possibility you will sell your home in the near term.
You cannot completely predict the future, of course, but you can look at your job stability, the local real estate market and other factors. If you plan to stay in your home for the long term, refinancing the mortgage becomes a much more attractive proposition.
How Much Will the Refinance Cost?
Last but not least, you will need to assess the costs of the mortgage refinancing deal. High closing costs can reduce the appeal of refinancing and eat up a large portion of your savings.
Your home is your castle, but if you have a mortgage it is also your biggest monthly expense. If you want to save money and build a better budget, refinancing the mortgage can make a lot of sense. If you are thinking about refinancing into a lower interest rate, taking the above four factors into consideration can help you make the best choice.