Refinancing your mortgage can be a great way to save money on your monthly payments. It can also shorten your loan term and allow you to access cash equity in your home.
But how do you know if refinancing your mortgage is right for you? It’s important to understand the costs involved, your goals, and what your break-even point may be. Lots to consider! Here’s our take on what to do before, during the application process, and after you close.
But how do you know if refinancing your mortgage is right for you? It’s important to understand the costs involved, your goals, and what your break-even point may be. Lots to consider! Here’s our take on what to do before, during the application process, and after you close.
1-Before Applying for a Mortgage Refinance
Check your credit score! Your credit score will significantly impact the interest rate you qualify for. To get a preferred interest rate, make sure your credit score is at least 670. If it isn’t, the best path forward may be to work on increasing your score so you can secure the best interest rate.
Know your goals for refinancing. What are you hoping to achieve? This will help you determine the best loan option.
Calculate your break-even point. That is, the amount of time it will take for the savings from your refinance to offset the closing costs you incur, which can be substantial.
One of the legal items on your closing cost sheet will be lender title insurance. Your lender will require that you purchase it. Learn more about lender title insurance and why it’s required with a refinance here.
Know your goals for refinancing. What are you hoping to achieve? This will help you determine the best loan option.
Calculate your break-even point. That is, the amount of time it will take for the savings from your refinance to offset the closing costs you incur, which can be substantial.
One of the legal items on your closing cost sheet will be lender title insurance. Your lender will require that you purchase it. Learn more about lender title insurance and why it’s required with a refinance here.
2-During the Refinance Application Process
Once you’ve done your refinance homework, decided it’s the right move for you, you’ll need to apply for the loan.
You’ll want to gather all your legal documents such as pay stubs, tax returns, and bank statements.
Do you have any debts or financial issues? Tell your lender. Be upfront about it. Don’t try to hide it. Also, ask questions. If there is something you don’t understand, speak up!
3-Loan Terms
If you can afford it, shorten your loan term to save money on interest accrued in the long run. Look for a lender that offers a rate lock to secure a low interest rate.
Need cash for home improvements or other expenses? Consider a cash-out refinance.
Need cash for home improvements or other expenses? Consider a cash-out refinance.
4-After You Close
Be proactive about your credit. Set up automatic payments to avoid late payments, saving money on interest and preserving your credit rating.
5-Monitor Your Credit Score
There are two ways refinancing can affect your credit score. When your lender reviews your credit history, it puts what is called a hard inquiry on your credit report. Each hard inquiry decreases your credit score by a little bit.
The second way is with the new loan itself. Your previous mortgage loan was older, and since older accounts are better for your credit score because you have a longer credit history, the new loan can ding your score.
You can minimize the impact to your credit score by rate shopping in the shortest amount of time possible.
Multiple hard inquiries can lower your credit score even more. The good news is most credit scoring systems group hard inquiries together if they occur in the same time period, generally between 14-45 days.
The drop in your credit score will rebound as long as you continue to make regular mortgage payments on time. Eventually, it will increase your score.
And lastly, avoid applying for credit applications following your refinance for at least one year. There’s no need for more hard inquiries on your credit score!
Are you refinancing your mortgage? Turn to Lilly Title & Settlement to close on your new loan. We’re obsessed with details. That’s why more people rely on our solid experience to get their loan closed on time and accurately.
The second way is with the new loan itself. Your previous mortgage loan was older, and since older accounts are better for your credit score because you have a longer credit history, the new loan can ding your score.
You can minimize the impact to your credit score by rate shopping in the shortest amount of time possible.
Multiple hard inquiries can lower your credit score even more. The good news is most credit scoring systems group hard inquiries together if they occur in the same time period, generally between 14-45 days.
The drop in your credit score will rebound as long as you continue to make regular mortgage payments on time. Eventually, it will increase your score.
And lastly, avoid applying for credit applications following your refinance for at least one year. There’s no need for more hard inquiries on your credit score!
Are you refinancing your mortgage? Turn to Lilly Title & Settlement to close on your new loan. We’re obsessed with details. That’s why more people rely on our solid experience to get their loan closed on time and accurately.
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