If you are thinking about refinancing your mortgage to a lower rate, then you are probably hoping to save money on your monthly payments. You can also go through the refinancing process to tap into the equity in your home to finance home improvements or consolidate your other debts. Your credit union can assist you with this big decision. We work with our members to help them find a new home loan that suits their individual financial situation. When it comes to refinancing your first mortgage, here are a few tips to follow.
1. When is a Good Time to Refinance Your Mortgage?
While saving money on your home loan sounds great, you need to pick the right time. Many lenders will tell you not to refinance your mortgage until you are several years into your first mortgage. This is so you can build up enough equity in your home to make refinancing worth it.
Once you have some equity built up, refinancing becomes a more viable option. In general, if you can reduce the interest rate on your home loan by at least one-two percent, then it is worth it to take a closer look at refinancing. Make sure that you look at all the numbers or speak with a mortgage lender like your credit union before making this decision. It’s important to review the cost to refinance versus the savings in interest. Keep in mind that depending on the market you might not be able to refinance for a lower rate, but you could still refinance to get cash out.
2. How Will Rates Impact Your Monthly Payment and Total Costs?
When you go through the refinancing process, you need to make sure that you run the numbers and understand how your new loan is going to impact not only your monthly payment but also your total costs. While refinancing to a lower interest rate is great, there are other costs that come with owning a home such as the closing costs that will accompany the refinancing process. Make sure that you take all this into account.
3. What’s the Value of your Property?
When you go through the refinancing process, it’s important to know the value of your property because this will definitely impact your home loan. Typically your lender will order the appraisal, however, you can review your tax assessment online to see your home’s approximate value until your appraisal is complete.
4. Know the Common Fees While Shopping for a Refinance
You also need to ensure that you are aware of some of the common fees that you might have to pay. These include points due at signing, origination fees, application fees, insurance fees, title searches to name a few. Also be sure to review any closing fees as well as the rate when comparing products. Your credit union will typically offer competitive closing costs.
5. Before Closing you Will Need to Include the Following:
Before you close on your refi, you need to make sure that you have everything you need. Common items to bring to closing include proper identification like a passport or a driver’s license and all of the necessary closing fees. You can check with your lender prior to closing to review the required list of what to bring.
When you work with your credit union, we can help walk you through these steps.
6. Always Specify the Goals of the Refinance
When you go through the refinancing process, it’s important to know your goals. These might include reducing your interest rate, shortening the term of your loan, switching to a fixed-rate mortgage, or tapping into your equity. Your credit union can help you align the refinancing process with your goals to set you up for success in the future.
7. Always Check Your Credit Score
While refinancing might sound nice, you need to make sure that you qualify. When you refinance, you are taking out a home loan, therefore, your credit score is going to matter. Always check your credit score and make sure that there are not any mistakes on your report. This could negatively impact your credit score. You can visit www.annualcreditreport.com to check your credit score for free.
8. Analyze Your Debt to Income Ratio
Your debt to income ratio will play a role in the success of your refinancing process. If your debt to income ratio is too high, then you might not qualify for a refinance. A good rule of thumb is to keep your debt to income ratio below 36 percent. This will keep you in a solid position, potentially helping you to qualify for the most competitive interest rate. You can check your debt to income ratio with this helpful calculator.
9. Get Ready for a Home Appraisal
When you go through the refinancing process, your lender will need to assess the current market value of your home. Remember that your home is going to act as the collateral for your refi and the value of your home must justify the amount of the loan. Always be present during the appraisal to answer any questions that arise. If you are working on any home improvement projects, finish them before the appraisal. This will help you get the best appraisal possible.
10. Lock the Mortgage Rate
If you receive a mortgage rate that you like, then lock it in. Your credit union can help! When your mortgage rate is locked in, it will typically be held for at least thirty days, preventing it from going up as the closing process unfolds.
Rely on the Help of the Best Mortgage Lenders in the Local Area
Following these tips can help you have a smooth refinance experience. When you go through the refinancing process, you can reduce your monthly payments, shorten your home loan, or tap into the equity in your home for renovations or debt consolidation. Peach State’s Mortgage Services Department can help! Call us at 770.580.6098 to speak with a member of our Mortgage Services team about refinancing your home.
If you are looking to refinance but are not sure which mortgage program is best for your needs, download our "How Much House Can I Afford in Georgia or South Carolina?" guide.
