Before refinancing, check these 5 money-saving tips
Refinancing might be a great choice for some homeowners as a way to gain extra cash for home improvements or to lower monthly payments. But it’s hard to know the best time and situation for a refinance to be a good decision. Check out these 5 money saving tips.
Do the math
It’s important to start by checking the break even point to see how long it will take for you to start saving money in comparison to how long you plan to live in your home.
To find your break even refinance zone, take the total savings on your mortgage per month and divide into the total closing cost amount. For example, if the closing costs are $6,000 and you save $200 a month after refinance, it will take 30 months to start saving money. If you aren’t planning to live in the home longer than 30 months, there is no point to refinancing.
Get a handle on your credit score
One of the most important components of gaining a favorable interest rate on your refinance comes from your credit score. It’s amazing how much your score affects your fees! For example, moving your score up one point (from 689 to 690) can reduce your fees by one point or $1,000 for every $100,000 financed! That’s a huge savings!
Take a few moments and
check to ensure there are no errors lurking within your credit history - by doing an audit. You can order your credit reports from Equifax, TransUnion and Experian. Be sure to report any errors immediately. There is a potential that solving errors can raise your score and, therefore, reduce your fees.
Another possibility is to look for a loan that enables you to roll the out of pocket fees into the loan itself, or even a loan with a higher interest rate but with with reduced or eliminated closing costs. This scenario, also called a “nocost-refinance”, is useful for homeowners who are looking to keep the property for a short amount of time (under 4 years) and it enables them to save money without additional out of pocket costs.
Shop for rates
Don’t rely on local banks to give you the best rate. It’s best to shop around, even driving to another city, or looking online. Often mortgage companies or your realtor will have a suggestion on a good company to use. Make a few phone calls to lenders and get several good faith estimates to compare. Your goal is to get the best rate and the best loan terms, so the physical proximity of the bank should not be an issue.
Don’t assume all offers are non-negotiable. In addition to interest rates, many fees may also be negotiable. Using multiple quotes may help to persuade lenders to negotiate fees to win your business. Other fees like title and escrow may also be negotiable, depending on the laws in your state.
Maureen Hughes is the Lead Listing Specialist of The Wayne Megill Real Estate Team of Keller Williams Brandywine Valley in West Chester. For buyer or seller representation, or for more perspective on the local and national real estate market, please email firstname.lastname@example.org and visit The Wayne Megill Team site at http://www. waynemegillteam.com.