Time to Refinance?

As interest rates continue to fall, refinancing your mortgage can have a positive impact on your overall financial plan. Refinancing can offer homeowners the opportunity to lower monthly payments and save money by paying less interest over the term of their loan.

If you’re thinking about refinancing your mortgage, consider these useful tips:

• Understand Your Credit Score: When refinancing a home, lenders will look at any outstanding debt, such as credit cards, student loans or delinquent bank accounts. Lenders will also look at your payment schedule to identify if you make your payments on time and will be reliable when making your mortgage payments. Understanding how your credit score works will help lenders easily determine if you qualify to refinance at a lower interest rate.
• Shop Around: While some lenders will work with you to refinance your loan as a way to get or keep you as their customer, others cannot compete with today’s low interest rates. Do your research to find the best option for your refinancing needs. You want to make sure that the terms and interest rate of your new loan will work for you in your current financial situation.
• Be Prepared: It’s important to have all necessary paperwork easily accessible to make the refinancing process as seamless as possible. Gather pay stubs, bank and credit card statements, tax returns and other key financial documents in advance as your lender will require these during the refinancing process.
• Understand the Terms of Your Loan: Understanding both your current mortgage and the one you are pursuing is necessary to making smart choices about refinancing. Ensure that you have a thorough understanding of the terms of your loan to avoid any misunderstandings or regrets down the road.
• Lower Your Interest Rate: Most experts agree that if you plan to stay in your home for many years, it is worth the initial upfront cost to reduce your interest rate. But do the math—make sure that amount of money that you will save in interest over the expected repayment period will be more than the cost of refinancing.
• Remember That a New Loan Starts the Clock Ticking All Over Again: Just because your payments are now less because of a lower interest rate, you may not save yourself money if this means you will thereby increase the term of your indebtedness, and will be making those lower mortgage payments for a longer period of time. For this reason, consider shortening the term of your new loan by paying a little more each month. You may even decide to make the old mortgage payments against the new loan, and thereby applying the refinancing savings to paying down your principal.

As always, a CERTIFIED FINANCIAL PLANNER™ professional has the experience and financial savvy necessary to help you build a refinancing plan that is tailored to your financial needs. He or she will be able to help you consider your different options to find the one right for you.