Around 65% of homeowners have a mortgage, although not all are created equal. Mortgage rates vary depending on the option you chose initially: fixed rates start off with a higher interest rate but stay the same for the entire length of your loan, while adjustable rates begin low for the first few years and then can vary remarkably.
Although the latter can seem more attractive for homebuyers at first, they may soon realize that the unpredictability of adjustable interest rates is quite risky; this is one of the most common reasons that homeowners look into refinancing their home loans. However, refinancing shouldn’t be done willy-nilly. Let’s take a look at what you should know before committing to such a big decision.
Refinancing Means You’ll Be Getting A Completely New Mortgage
The main idea behind refinancing is to lower your current interest rate, but that isn’t as simple as changing one aspect of your current loan contract; you’ll need to start completely fresh. This means you’ll be expected to do just about everything you had to do when you got the original one: mortgage lenders will check your credit score, require documentation that substantiates your income, assets, and employment, and fees are often involved. Closing costs, title search fees, and title insurance premiums will be folded into the amount borrowed. Refinancing is not a simple process, so make sure you’re ready for its demands ahead of time.
You’ll Have To Consider All Of Your Options
If you’re going to put yourself through the trouble of getting a whole new mortgage, simply choosing a “fresher” version of your original loan may not be the best idea. This is entirely dependent on your needs and current financial situation; if you have the funds, you may want to switch to a 15-year mortgage as you’ll be able to pay off your home more quickly. If you’re nervous about being locked into such a short time frame, you can choose a longer time frame and make pre-payments if you come into more money along the way — just make sure you won’t get penalized for making extra payments.
Refinancing is a serious decision that requires time and consultation to make. If you rush into the process, you may end up making your entire financial situation even worse and will end up paying the price tenfold. Do your research (and potentially discuss your decision with an advisor) and you’ll be able to reap the benefits of a refinanced mortgage.
