Refinancing is a no-brainer for many homeowners who are paying higher-than-average interests. After all, mortgage refinancing is a popular way for homeowners to save money on their monthly payments and enjoy lower interest rates. But it’s not as simple as it used to be. A decade ago, refinances were easy; Borrowers could quickly get a new loan with a lower rate, shorter term, or both, and their monthly payment would drop by hundreds of dollars. Today, you have to jump through more hoops and prove that you’re truly eligible for a refinance.
The following guide will tell you what you need to do to secure a mortgage refinance.
Check Your Credit Score and History
You’ll need to prove that you’re able to repay a new loan, so check your credit reports before you apply for any new loans. If there are any problems that could keep you from qualifying for a loan with a low-interest rate, correct them first.
Make Sure that You Can Afford Your New Monthly Payment
If you plan on refinancing your current loan with another one, make sure you can afford to make the new monthly payment — especially if you’re refinancing to a loan with a shorter term.
Work out Exactly how Much Money You Stand to Save
You can get an estimate of the potential savings on your mortgage refinance by using a mortgage calculator. Just key in all the details of your current loan and select “Refinance” as the purpose for your new loan. The calculator will tell you what kind of monthly payment you’ll have as well as how much you’re likely to pay for interest over the life of the loan. Then, run several scenarios using different interest rates to see how much money you could save by refinancing. Once you’re done, think about whether refinancing makes sense for your situation.
Shop Around
Don’t assume your current lender will give you the best possible offer because you’re already a customer. It is in your best interest to compare a few different offers and opt for the most competitive of them. Remember to approach traditional banks, credit unions, and online banks before you make your decision.
