For those looking to refinance their mortgage, now is potentially a great time. Mortgage rates are very low currently, meaning there may be opportunities to refinance your home loan to a lower rate that makes your payment situation more affordable -- but ensuring you've taken the right steps in this process is important.
At Integrity First Lending, we're happy to offer a variety of mortgage refinancing services to our clients, helping Utah homeowners who are looking to refinance for a range of different reasons. We walk our clients through this entire process and help them avoid any pitfalls that may arise, and we're here to do the same for you. With this in mind, here's a rundown of the various dos and don'ts when you're in the process of refinancing, ensuring you'll stay on the right track and get the best deal possible.
Things to Do
When looking into refinancing, here are a few boxes you should be sure to check along the way:
- Compare loan costs: It's important to be aware of how much it will cost you to refinance your mortgage. This may mean speaking with multiple lenders, as the costs are not always the same. Some lenders may offer a lower rate, but charge an application fee or set up fees. Do you research and compare loan costs to find out what really makes sense for your situation -- this also includes comparing the refinancing rates and costs to your current mortgage situation. Make sure you're comparing like to like: Are you hoping to refinance from an adjustable rate mortgage (ARM) into a fixed-rate loan? Or are you hoping to move from one 30-year term to another? It's important that when considering refinancing, the new terms match the old in terms of interest schedule and term length.
- Work on your credit: This applies not just to refinancing, but any major financial decision that requires access to capital -- be it a new car, student loan or house refinance. When you're approved for a new loan, your lender will pull your credit report and score in order to establish the terms of the loan. The better your score, the better your rates -- so confirm with the lender what your credit looks like and work on ways to improve it based on their feedback.
- Consolidate debt: If you've been making multiple payments every month, consider applying all of that money toward a good refinancing deal for a lower interest rate. Keep in mind that if you're applying for a mortgage refinance in order to consolidate debt, you should be able to get lower monthly payments on your new loan.
- Consider changing from adjustable to fixed rate: If your current mortgage rate is an adjustable one, you may be able to get a better long-term rate by switching to fixed. Get in touch with several lenders and compare what you can do, based on how much equity you have in the home -- if the house is paid off, refinancing to a fixed loan will generally make sense. It's worth noting that if the rates rise over time, locking into a fixed rate loan will protect on the downside.
Things NOT To Do
On the flip side, there are a few common mistakes we see from homeowners during the mortgage process. These include:
- Don't get too caught up in mortgage rate: While the mortgage rate during a refinance is certainly an important factor, it's not the only one. There are several other factors that can help or hurt your situation, including closing costs and loan terms. In fact, some borrowers have been surprised to find out they could have gotten a lower rate on their refinance if they had chosen a longer term with higher monthly payments.
- Don't forget about the prepayment penalty: Not all loans allow you to pay off more than the minimum monthly payment. If this is you, make sure to look into whether or not a refinance will incur a penalty for paying off your loan ahead of schedule. In some cases, there may be an initial fee which goes toward closing costs and can be paid in lump sum at the time of closing.
- Don't get sucked into advertising: Mortgage refinancing is a competitive industry, and marketing can be very aggressive. While it's important to do your research on the different lenders available, don't make a decision based on flashy marketing tactics or quick offers of low rates. Take the time to get several quotes and speak directly with representatives from each lender to understand what you need to do in order to be approved for a loan amount that works for you.
- Don't send multiple applications to different lenders: While researching multiple lenders is a valuable and necessary part of this process, you should stop short at actually sending in multiple applications. This is because each application will have a hard inquiry on your credit report, meaning a lower score each time. Multiple applications will take a serious toll on your credit score and could even result in delaying the process of refinancing. Rather, identify the best lender for you based on your needs, and send a single application to this lender before proceeding further.
For more on various items you should and shouldn't be looking closely at during a mortgage refinancing situation, or to learn about any of our mortgage rates or other home loan services, speak to the staff at Integrity First Lending today.