When the time comes to refinance your mortgage, you will probably want to make it as painless as possible. It is only natural to contact your current mortgage holder and accept one of the many offers made to you by email and direct mail. However, to get the most savings and make the whole process interesting, you need to add seven key points to your to-do list.
1. Know what you need to do
Before activating mortgage refinancing, review the balance and conditions of your current loan. This way you can determine how much you are likely to save if you take into account current refinancing rates, the payment from your current lender, and the closing costs and costs you face. You can also get a good picture of your best possible savings scenario and the acceptable minimum credit terms that you want to negotiate.
2. Check your credit score
If your credit rating has improved considerably since you took out your existing mortgage, you may be surprised by a pleasant surprise. A higher credit rating can lower the mortgage rate.
Check your credit rating by getting a free report from AnnualCreditReport.com, the official federal website that guarantees free reports to consumers. Then consider purchasing your current credit rating from one of the three major credit bureaus. There are many variations of the popular FICO score. Make sure to ask for the one that is most used by mortgage lenders.
Many banks and credit card companies offer their customers free credit scores. These can be helpful, but you may not get the most relevant score for a mortgage application. Surveys by the Office for Financial Consumer Protection have shown that different rating models can change the credit quality category for almost a quarter of consumers. (For example, from “good” to “average”).
3. Freeze new debt.
If everything fits well with your credit rating, block your scores by resisting the urge to make additional purchases with a credit card, or open new credit accounts. In any case, get the money back and pay off whatever debt you can. Protecting your credit rating can be essential to maximize your savings when refinancing your mortgage.
4. Buy at least 3 mortgage lenders
Research shows that borrowers get the greatest savings by buying at least three lenders. In a recent study, the CFPB found that 47% of consumers consider a single lender when looking for a mortgage and can lose thousands of dollars in savings bypassing a low-interest mortgage lender.
5. Refinancing mortgage insurance
If you pay less than 20% of your original mortgage, you will likely pay for mortgage insurance. These are fees that protect the lender in the event of borrower default.
To date, your appreciation may have given you enough capital to make mortgage insurance premiums useless. However, some lenders do not have to automatically cancel your mortgage insurance until your loan balance has fallen to 78% of the cost of the home. The original purchase of your home. or until the middle of your mortgage payment, whichever comes first.
Refinancing or at least reducing your mortgage insurance premiums can result in significant savings, especially if your original mortgage has been guaranteed by the Federal Housing Administration (FHA).
6. Forget cash withdrawals and long-term refinancing
It is a common temptation to do a cash withdrawal refinance that converts your capital into cash that you can spend. It may even be for a charity like a college funding or paying for high yield credit cards.
The fact is, you get the value of your house and it can be a slippery slope, especially when the house values come back south.