How To Know If Refinancing Mortgage Is Worth It –The decision to refinance a mortgage is a serious one, and it involves multiple factors that need to be considered. Understanding how refinancing works and analyzing how it may affect payments and finances can help homeowners make an informed decision about whether refinancing is worth it for their particular situation. Here we’ll detail the process step-by-step and provide important information to help you determine whether or not refinancing is the right choice for you.
Analyze the Impact of Refinancing on Your Mortgage Payment
The primary objective of refinancing is to reduce your mortgage payment. Before deciding to refinance, it is important to consider the impact that a new mortgage would have on your current financial situation. Do some research to find out the current market rate of interest you can get, and compare that rate to the interest rate of your current mortgage. Calculate your principal and interest, taxes, and Insurance separately to see how the different rates would affect your total monthly mortgage payment.
Gather the Necessary Documents for Refinancing
The documents you need for refinancing a mortgage depend on the type of loan you are taking. Some common documents include:
- Recent bank statements
- 2012 or 2013 income taxes returns, including all Schedules A and creditor 1099s
- Most recent pay stubs for the past month
- Social Security numbers and dates of birth for all borrowers
- The deed of trust or security instrument from your current loan
Gathering these documents ahead of time will make the process of applying for a loan much smoother. It is also important to note that different lenders may have additional requirements, so be sure to check with the lender to make sure you have everything they need.
Compare Different Interest Rates and Payment Periods
When considering refinancing, it is important to compare different options and determine which one will give you the lowest payments and best interest rate. A 30-year fixed rate mortgage may be the best option for someone who is looking to maximize their cash flow while a 15-year fixed rate mortgage may be the better choice for someone who wants to pay off their mortgage faster. Also note that most loans have an initial teaser rate, so it is important to factor in the potential of rate changes over time.
Analyze Potential Cost of Refinancing
Refinancing loans often come with fees and closing costs, which can be quite costly. Homeowners should make sure to factor in these costs into their decision-making process when refinancing. Closings costs typically include appraisal fees, title insurance, recording fees, and other fees associated with the loan process. Homeowners should also consider any prepaid items such as taxes, insurance, and interest.
Consider Long Term Impact of Refinancing Before Making the Decision
It is important for homeowners to consider the long-term implications of refinancing their mortgage. Refinancing often involves extending the length of the loan, which will result in paying more interest over the life of the loan. Additionally, there is the potential that you may owe more than the current value of the home, so it is important to consider your current financial situation and future plans before making a decision.
Refinancing a mortgage can be a great way to reduce one’s monthly payments, but it is not without risks. Homeowners should carefully analyze the potential costs and implications of refinancing before making a decision. Once a homeowner has gathered the necessary information and completed their research, they can make an informed decision to determine if refinancing is right for them.