Throughout the journey of homeownership, the opportunity may arise to refinance your mortgage. Refinancing your mortgage can save you money in the long run by reducing your interest rate or lowering the timeline of your mortgage. However, refinancing can be a difficult decision as there are several different components you must consider. Continue reading to learn the dos and don’ts of refinancing your mortgage.
Ensuring It’s Financially Beneficial
If you are going through the whole refinancing process, you want to make sure it is truly financially beneficial for you. Especially since there are costs and fees attached to refinancing, you want to make sure you are going to save more money than the fees will cost you. You also want to make sure you are getting a lower interest rate than your current mortgage.
Being on the Lookout for Scams
You may receive emails urging you to refinance your mortgage, consolidate your loans into one mortgage, or sell your home to buy it back. These can easily be scams that are trying to manipulate you into sending them money or even turning your home over to them. Scammers have been getting increasingly better at looking real and seeming like a good idea. Be extremely cautious about emails, calls, and texts that prompt you to refinance your house.
If you are looking to do a cash-out refinance, you need to know how much equity you have in your home. Equity is measured by the difference between the value of your property and how much you owe on your mortgage. As you pay down the principal amount in your mortgage payments, you gain equity in your home. A cash-out refinance is when you can exchange equity for cash. You may do this to cover repair costs or cover remodels that could increase the value of your home. Prior to a cash-out refinance, you can request a mortgage statement from your current lender to see how much equity you currently hold.
Forgetting About Closing Costs
Similar to when you first purchased your house, you will have to pay closing costs on a refinance. The exact closing costs that you will have to pay depend on your area, but a few closing costs could include:
An application fee to the potential refinancing lender that must be paid whether you are approved or not.
- An appraisal fee to receive an appraisal prior to the refinancing so your lender can ensure that your home value has not decreased since you purchased it.
- Attorney fees if your state requires an attorney to review the refinancing documents prior to closing.
Refinancing for the Wrong Reasons
Refinancing your mortgage is a great way to save money. However, you shouldn’t refinance for the wrong reasons. Some of these wrong reasons for cash-out refinancing include paying off unsecured debt, paying off a debt collector, or purchasing a big-ticket item with the money you receive.
Refinancing your mortgage can be difficult without a knowledgeable financial advisor on your side. Our advisors at Plan A Wealth Management are here to help. Schedule your consultation with us today.