Refinancing your mortgage is a financial decision that has the potential to save you thousands of dollars over the life of your loan.
Unfortunately, if you make the wrong decision, it could cost you thousands of dollars extra. For this reason, it's important to find out as much as possible about the loan you wish to move into before you agree to a refinanced mortgage. Ask these questions before you sign any paperwork.
1. What are the fees?
Every mortgage comes with fees, but figuring out exactly how much you'll pay for a refinance is essential since mortgage fees can vary by thousands of dollars. This means that one of the first questions you should ask when checking out a new mortgage is how much the fees will cost you. Keep in mind that these fees can be wrapped up into the final amount that is loaned, but you will have to pay interest on the fees if you choose this option.
2. Do I have to have the house appraised?
If you know you have a lot of equity, this isn't such a big deal. However, if you're not sure or are behind on your loan, an appraisal requirement can mean that you'll be spending a lot of money on fees, but you won't be able to refinance the loan.
3. What will my refinance rate be?
An adjustable-rate mortgage may start off with low monthly payments, but it has the potential to increase. That means that you might be in a position where you have to refinance your mortgage again in a few years. If you're confident that you can handle that process, then an adjustable-rate mortgage might be a good idea. Otherwise, look for a fixed-rate mortgage.
4. What happens if I sell the house?
Loans with pre-payment penalties are uncommon, but they do exist. Furthermore, many people who refinance overlook this crucial detail in their quest to get a lower interest rate. If your new loan has this penalty, then you will not be able to sell or refinance until the term of the loan is complete without paying penalties.
5. Am I really saving money?
The main reason that most people choose to refinance their property is to save money. That can mean saving money every month on a payment, saving money over the life of the loan on interest, or ideally, both. Make sure you get a quote, in writing, that states all of the terms and conditions of the new loan, and compare it to your old loan before agreeing to refinance.