If you own your home and you are looking to save some money, a great way to accomplish this may be to refinance your house. Interest rates are always going to vary and these days they are on the lower side when you look at the rates historically. If you’ve been in your home for a while then it may be to your advantage to get a lower interest rate as this will lower your monthly mortgage payments. Sounds like a no brainer right? Not so fast.
When you refinance your house it is not as simple as it sounds. There are a few things you should know before you decide to go ahead and refinance you house:
•Do you have equity in your home: Having equity means that your house is worth more than you owe on it. Historically this is almost always the case, but with the recent housing debacle many home owners find themselves owing more on the home then it is worth. A sure way to know is to get your house appraised. This can be done online for free at websites such as Zillow.com but that will only give you a rough estimate. If you want to be absolutely sure, you will have to hire a pro which is going to cost you some money.
•Will you have a pre pay penalty: Before you get too gung ho on refinancing your house, you need to know if your existing mortgage company is going to charge you a pre payment penalty. Mortgage companies do this often to discourage people from going with another mortgage company that will then be getting your years and years of interest. Pre pay penalties vary from company to company but it is not unusual for them to be several thousand dollars.
•Fees: As with your first mortgage you got on your house, a refinanced mortgage is going to include all sorts of fees like closing costs and so on. These fees can also add up to be in the thousands of dollars and need to be looked at.
•How long are planning on staying in your house: You need to consider how long you plan on living in your house. As you can plainly see, refinancing your house can cost you quite a bit of money. While the lower rate will save you on monthly mortgage payments, it may take two or three years before you realize that savings because of all the fees involved. If you are not planning on staying on your home long term, then it may not be in your best interest to refinance it.
If and when it is time to refinance your house make sure you do so with a fixed rate loan. Going with an adjustable rate loan will save you out of the gates, but only have you trying to refinance when the rates skyrocket down the road.
As with anything else, shop your mortgage refinance around to get the absolute best rate you can. With the fees you will incur by refinancing your home, every little bit of savings counts.
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