Refinance Mortgage

Tips for Getting a Refinance Mortgage Loan for Your House

There are various reasons why people to choose to obtain a refinance mortgage loan for their properties. You may see a lot of commercials on TV about getting a refinance loan to help you lower payments and have better terms. It’s important that you do your research before applying for any refinance mortgage loans, so that you can ensure that you’re getting the best deal possible. Below, you will find tips on how you can get the best out of refinancing your home mortgage.

Deciding if You Should Get a Refinance Mortgage Loan

Before you go out and start applying for a refinance mortgage, you should first take a look at your financial situation to see if it is the ideal thing to do. For a lot of people, getting a refinance loan is to reduce their mortgage payments and to lower their loan’s interest rate. Back in the 1980s, it was ideal for homeowners to choose to refinance their homes only if they were able to get the interest rate down by 2 percentage points. So if they had a 6% interest rate, they would only refinance if they could get a 4% interest rate or lower.

Today, this rule of thumb no longer applies. If you can get any interest rate lower than what you have, you may want to go ahead and refinance your home. Here is why the 1980s 2% rule no longer applies:

  • Today’s interest rates are much lower than they were in the 1980s, so refinancing a loan that is 7% to one that is 6% would be proportionate to refinancing a 14% interest rate loan to one that has a 12% interest rate.
  • It is cheaper today for origination loan fees. Before, it would take a long time to pay for the loan origination costs when a mortgage was refinanced. Since you can get lower points or origination fees, only a small reduction in interest rates is needed to make a refinance loan a good option.

A rule of thumb for today would be to investigate any refinance mortgage loan that has a smaller percentage rate than your current loan. Maybe the rates have fell since you obtained your mortgage or you didn’t shop around enough before closing the deal on your current mortgage.

Choosing a Refinance Mortgage Loan

Once you have decided that it’s time to have your mortgage refinanced, you will need to do your due diligence to find the best loan product. There are different ones to choose from, including adjustable-rate mortgages (ARMs) and fixed-rate mortgages that come with various terms and interest rates. Your best bet is to avoid ARMs that will adjust in five years or less because it could leave you with a higher interest rate than you have now. Some homeowners take out ARMs and refinance them annually, allowing them to avoid the rate adjustment. The loans they use have no points that keep refinancing fees low. This does work out for some people, but only if the interest rates are on a decline each year.

A fixed-rate mortgage can be used instead, which can come in terms that last 15 or 30 years. If you decide to go with a shorter term, make sure to do the calculations to see if you can afford it. The monthly payments for a 15-year term will be much higher than that of a 30-year mortgage. If you are able to afford it, it could end up saving you since you will end up paying less interest than with a 30-year loan. Other loans include the 5-year balloon, 7-yaer balloon and 10-1 ARM products. These can be used if you plan to move or want to pay off your mortgage in less than 10 years.

Before You Get a Refinance Mortgage Loan

If you are only a few years into your mortgage term, you can use a refinance loan to shorten it, maximizing your savings. You can choose a short-term and eliminate years of interest that you would have ended up paying otherwise. It’s a good idea to check out your credit report to see what’s on there. By repairing your credit, you can lower the interest rates that you will be quoted for by a lender. Try paying off small balances that are outstanding to help improve your credit rating.

If you are looking to shorten your mortgage term or lower your monthly payments, you can use a refinance loan to do so.