At some time or another, you will likely reach a point of deciding to refinance your home mortgage. Approximately 65% of all mortgage applications in the past five years were specifically for refinance, especially with interest rates being at an all-time low. In fact, with rates dipping as low as 5.85%, the lowest they have been in 40 years, perhaps you should be thinking about refinancing your home loan.
Just remember that just because interest rates are low does not mean money is free. In other words, you would enjoy lower interest, which would save you money in the long run but just as you did with the original loan, you would have to come up with a down payment and closing costs in most refinancing cases. In addition, you could be faced with additional fees so you want to be prepared to pay some money out as a means of enjoying those lower interest rates.
We recommend you shop around for a fixed rate mortgage loan on a 15-year loan, as well as the ability to clock into current rate for at least 30 days when looking at refinancing options. Typically, you see people who refinance cashing out some of the home equity with $30,000 on average. With that money, they perform some type of home improvement, make purchases, send a child to college, or consolidate debt. However, when you refinance, you do not have to take out equity although it is an option.
You want to determine the number of years you expect to stay in your home. The reason is that a good rule of thumb is that the cost to refinance your home should be paid for within two years. Therefore, if you plan to live in the house longer than two years, you might think about paying points, which will lower the rate even lower. The number of years you plan to stay in the home will also help you decide on a fixed rate versus adjusted arm mortgage loan. Then, you want to make sure you avoid prepayment penalties if possible.
Keep in mind that every person applying for a loan should receive what is called a Good Faith Estimate of Closing Costs. This list would provide you with a list of all the items that would be charged to you for refinancing your home. When looking at this list, you want to pay careful consideration to what you would expect to pay versus the fees that would be rolled into the loan over the life of the loan. In most cases the application fee would cost between $200 and $400. Then, you have the origination fee, title insurance fee, title search, lender fees, and many of the same fees you paid with the original loan.