Your primary residence is both an important investment and your home. Because of the dual roles of your residence, its mortgage affects more than your budget or balance sheet. It also has the potential to put your shelter at risk if you borrow more than you can afford. Finding the best refinance will help save you money and keep your home secure.
Assess Your Position
Check your fitness to refinance. Research the price of comparable homes in your neighborhood on Internet sites such as Zillow.com or by talking to local real estate agents. You will need to add cash to refinance if you owe more than your home's value. Find out the current interest rate on your mortgage and whether the interest rate adjusts. Survey current average mortgage rates online at Bankrate.com to see whether a reduction in your rate is likely. Consult your loan documents, or ask the lender whether you have a prepayment penalty. Check your credit score. You will qualify for the best terms on a new loan only with a credit score of 720 or more. Assess your current income if it varies year to year.
Use a variety of resources to find lenders. Check online sites such as Bankrate.com and Zillow.com to survey mortgages. Call local credit unions and banks as well as regional or national ones to find out what rates and terms they offer. Once you know the general market, check with your original lender. Or use a mortgage broker to compare a variety of lenders more easily. Find out what fees a mortgage broker charges to avoid surprises.
Compare Rates and Costs
Make a simple chart or spreadsheet to record your findings on the important characteristics of loans you want to consider. For example, compare home equity requirements, 15-year loans, 30-year loans and interest rates across several lenders. Compare the interest rates for fixed-rate and adjustable loans. Include Federal Housing Administration or Veteran Affairs loans, if you qualify. List all fees, including loan origination fees, points and appraisal fees. Add in the amount of insurance for FHA or VA loans. Similarly, include the amount of private mortgage insurance on a conventional loan exceeding 80 percent of the appraised value.
Make Your Choice
Decide which loan to apply for based on your needs and finances. Consider factors such as your budget, the interest rate, monthly payments and total closing costs. If you need to reduce your mortgage payment, you may prefer a 30-year loan with more affordable payments. A 15-year loan will help you save more on total interest if you can afford to pay more each month. A fixed-rate loan protects you against rising interest rates, while a variable one allows you to profit from falling rates. Compare different loans and the cost of paying them off using an online mortgage calculator, such as that at Bankrate.com.
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