If you got a home loan at a time when interest rates were higher, then watched as interest rates have dropped to record lows over the past few years, you might be thinking about refinancing into a lower interest rate. While the refinance process is not right for every homeowner, there are some advantages that you might want to consider. If you’re interested, here are some insider tips to help you get the most from your refinance process.
Don’t Focus on the Monthly Payment
If you have been paying on your 30-year mortgage for the past 10 years, and you refinance into a new 30-year loan, your payment will automatically go down. Chances are you will be financing a lower amount of money (unless you borrowed against your home with equity loans and have a higher principal balance today), and you just extended your total payment period from the original 30 years to 40 (the 10 you already paid, plus 30 more) and you may end up paying more in interest over the long run even with a better rate. Instead, focus on the interest rate you will be getting to determine if it’s worthwhile to refinance.
Consider Shorter Maturity Loans
If you can afford it, talk to your lender about the benefits of a shorter loan, such as a 15-year loan instead of a 30-year loan when you refinance. Your monthly payments might be a little higher, but these loans offer a lower interest rate and allow you to put more money toward the principal balance of the house and pay less in interest over time. It’s important to make sure you can afford the higher payments before you do this, though, as you don’t want to get in over your head and end up missing payments.
Follow Your Loan Officer’s Instructions
Just like when you applied for your initial loan, the refinance process requires a lot of paperwork and information. Lenders want to make sure that you are qualified for the new loan, that you can afford to pay it, and all your paperwork is in order. It might seem frustrating to have to fill out forms and provide documentation for things like your income when you were already approved for a home loan on the same house before, but if you fail to provide the right information in a timely manner, the result could be denial of your refinance loan request.
Keep in mind that just because you filled out the application to apply for a refinance, that doesn’t mean you are officially approved yet, so don’t go out and spend the money you think you will save until the loan goes through. Find out more about refinancing with City Creek Mortgage today.