The real estate market has changed in 2015. Interest rates are low and homeowners can think about refinancing their existing loans at a lower interest rate. However, the refinancing process is a little confusing. For first-timers, it can be a little difficult to understand just how to go about the home refinance process. To help you out, we’ve listed a few things you should consider before you go ahead with your home refinancing.
Check with your existing lender — As all lenders have lowered their interest rates, your existing lender will also have lower interest rates. Get in touch with your lender and find out whether you can home refinance your mortgage. Lenders hate losing their loans to other companies and your lender will be more than happy to work with you. However, we do recommend you still research what other companies are offering. You can use this information to bargain for lower rates, fees, etc.
Know the process — Borrowers should contact lenders and list a specific time frame for when they can lock the rate and complete the refinancing process. Usually, a borrower locks the current interest rate for 30 days but lenders may take more than 30 days to close. In this case, the borrower will have to pay a fee to extend the rate or you will have to follow the current interest rate. It would be smart to lock the rate for at least 45 days to protect yourself.
Consider the cost of shifting to a new lender — When you refinance your loan with another lender, you have to close your existing mortgage. This can prove to be expensive in the long run. Mortgage closing costs can easily run in to several thousand dollars. To decide whether this expense is worth it, we recommend you divide the total closing costs by your month’s savings. This will give you the break even time or time that you will be saving by taking the loan. If the break even time is more than the loan period, you should probably think about staying in your current mortgage.
Get the best rates — The general rule is that you should get at least 1.5 point less than your existing interest rate to refinance your loan. Make it a point to calculate exactly how much you will be saving over the term of the loan before you switch lenders.
Ask for complete estimates — You should ask for a good faith estimate from all lenders to understand exactly how much you will be paying. This ‘good faith estimate’ is actually a form in which lenders are legally required to disclose exactly what they will be charging in fees and estimated costs.
Keep a close eye on the interest rate in 2015. Although industry watchers are saying that this is a good time to refinance, the market can change at any time. Make sure you do your research properly before you contact lenders. If you’ve done your due diligence, your home refinancing should go smoothly.
