By JUSTIN HARMON
Special to the Sun
It’s not always easy to navigate the waters of personal finance, and mortgage topics can be even more complex. When it comes to refinancing your existing mortgage, there can be a number of benefits including:
- Getting a lower interest rate
- Removing private mortgage insurance (PMI) from your loan
- Reducing your monthly payment
- Accessing the cash you’ve built in equity
If you’ve ever considered refinancing your existing mortgage, we’ve compiled a list of pertinent questions to ask yourself to help you prepare to make an informed decision that is best for your specific financial situation.
1. How much equity do I have?
Home equity is basically the market value of your home less the amount you owe on your home loan. If you’re considering a refinance, it’s wise to determine how much equity you have because if you have less than 20% equity in your home, you may need private mortgage insurance (PMI) on your loan.
2. What is my credit score?
If your credit score has improved since the time you received your mortgage, you could qualify for a better interest rate. A better credit score could lower your monthly payment and provide significant savings on interest over the life of the loan.
3. How much will it cost to refinance my home?
Like a first mortgage, there are fees associated with refinancing. A mortgage loan officer can help you determine whether the savings you realize from a refinance will compensate for some of the costs associated with the refinancing process:
1. Application fee
2. Attorney and preparation fees
3. Title insurance and title search fees
4. Closing costs (approximately 3–6% of the loan amount)
5. Appraisal fee
4. Have interest rates decreased?
If mortgage rates have decreased since your mortgage was issued, you could take advantage and refinance to a lower-rate loan. The lower rate could decrease your monthly payment and provide long-term interest savings.
5. How long have I been making payments on my mortgage?
As you initially repay your mortgage loan, the majority of your payment amount is directed toward interest first, and you gradually pay down principal (the loan amount) as time passes.
For example, if you’re 15 years into a 30-year fixed-rate loan, there’s a good chance you’re directing more than half of your monthly payment toward principal and making real progress toward lowering your total balance and paying off the loan. Refinancing halfway through your loan would cause you to completely start over, with payments going mostly to interest instead of principal again. That being said, financing at a significantly lower rate could still positively impact the amount of your payment that is funneled to your principal balance.
Ultimately, there are pros and cons to refinancing and every situation is unique, so it’s wise to consult a loan officer before making a final decision.
Interested in refinancing your home? Our mortgage concierge service will walk you through the entire process. Visits us at www.msfcu.us or call us at 601-351-9200.