Don’t Refinance Your Mortgage Without Doing It First — Best Life
The path to home ownership is strewn with pitfalls. While having a place to call home can be truly rewarding, it also forces you to make countless decisions that impact your finances, living space, and overall well-being. One of those decisions could be whether or not to refinance your mortgage. Of course, this process can be tedious. However, it can also save you a lot of money over time. Here we spoke to real estate and financial experts to find out what step you need to take before signing the dotted line. Read on to find out how to make the best financial move possible.
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You know the sage advice to always seek a second opinion? Well, that also goes for refinancing your mortgage, and more. “Get a quote from up to three lenders,” says Andre Young, Vice President and Direct Consumer Director for United Community Bank Mortgage Services. “This allows you to compare each lender’s costs and terms before refinancing to ensure you get the benefit you want.”
You will also want to make sure these lenders are people you trust. Esther Phillips, senior vice president of key Chicago-area mortgage services, suggests choosing someone recommended by a trusted friend, family member, real estate broker or attorney. “A home is the greatest asset most people will ever have, so refinancing should be a personalized experience,” she says.
The main purpose of refinancing your mortgage is to replace it with a new one that will save you money. Often this is done through lower interest rates or a lower monthly payment. “Other benefits include taking money out of your home to pay off debt or make improvements to your home, dropping your mortgage insurance, or reducing the term of your mortgage to save thousands of dollars paying off. your loan sooner,” says Young.
Of course, there are also risks. Since refinancing costs money—those legal and lender fees add up—it’s possible to spend more on refinancing than you save. This brings us to our next point.
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Just because a lender offers you a new mortgage at a lower interest rate doesn’t mean it’s the best deal overall. In order to determine this, you will need to add up all legal and lender fees associated with the refinance.
“A simple formula can be used to determine if these expenses are worth it,” explains Corey Tyner, real estate investor and founder of Buy Yo Dirt. “To get started, deduct your existing monthly payment from your estimated new monthly payment. You’ll save this monthly amount by refinancing at a lower rate. Then, divide the total cost of fees by the monthly savings you calculated earlier.”
This number indicates how many months you will need to live in the home to break even on your refinance fees. If you don’t plan to stay that long, you’ll probably want to continue with your original loan.
The worst thing you can do when refinancing your mortgage is to pretend you already know all the answers. “The one thing I implore all homeowners to do before refinancing their home is to understand that there are no dumb questions,” says Nicole Rueth, senior vice president and producing branch manager of The Rueth Team at Fairway Independent Mortgage Corporation. “And you need to know all the numbers of the transaction.”
By creating an open dialogue with your lender, you can have peace of mind knowing that you are aware of all the fine print of your new mortgage. This way, you can take full advantage of the benefits of a refinanced loan, without any stress.
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