Any news of a drop or a rise in the long term interest
rates gets many homeowners thinking about whether refinancing their mortgage
could be beneficial to them. Refinancing can be a wise strategy to save money
on a long-term basis. It can also help a homeowner in curtailing the duration
of his mortgage. However, there are a lot of factors that one needs to keep in
mind before joining the ‘refinancing bandwagon’. Refinancing without
understanding your financial needs and the current state of your property could
turn out to be a financial nightmare for you. In the following points, we will
take a look at some Refinancing Solutions
which can be beneficial for those who are thinking about refinancing mortgages.
Shop Around
for the Best Deal
The first thing you should do is to check out the best
deal in the market. If you have a handsome equity in your home, and your credit
score is on the higher side, there is no reason why lenders won’t make a
beeline to offer you some of the better deals. Ideally, you should be looking
at getting a quote from at least five different vendors. If you have had no
issues with your current financier, you can also have a look at what they have
to offer to you. Credit lending institutions understand the importance of
keeping a customer; therefore, there is likelihood that you will get some
competitive quotes from them. Apart from comparing the interest rates, you
should also check about the reputation of the lender. There are a lot of hidden
costs and fees that lenders usually avoid or conveniently ‘forget’ to discuss
during their sales pitch. Established lenders, who have a reputation for
providing exceptional customer service, are often more transparent in their
dealings. Therefore, you should carefully take a look at all these options
before signing up with a lender to refinance your mortgage.
Look to Reduce
Interest Rate Substantially
As we mentioned in the beginning of the article, any news
about the drop in the interest rates sets homeowners in ‘refinancing mode’. An
important thing that all homeowners should understand is that there are
significant costs associated with closing your old mortgage and starting a new
one. Therefore, unless you are able to reduce your interest rate substantially,
you should think twice before even considering refinancing. For example, if you
are paying a 9% interest rate on a 30-year mortgage, which has a fixed rate of
interest, refinancing it to avail an 8.95% fixed-rate interest might not be in
the best of your interests. On the other hand, if the new loan is cutting down
your interest rate by 1% or more, you should definitely give the offer a
further thought.
Check Your
Credit Score
Amidst the whole talk of refinancing, one of the important
parameter that gets overlooked is the credit score. Lenders are laying added
emphasis on the credit score of the applicant. Refinancing your home involves a
lot of paperwork, and the last thing you would want is not being eligible due
to a low credit score. Ideally, a credit score of 700 or more will see you
through, but if you credit score is hovering on the 650+ range, you might need
to accept a relatively higher interest rate from the lender.
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