Low refinance mortgage rates are tempting
Today's low refinance mortgage rates have many people considering a refi, but taking on a new home loan isn't the right decision for everyone. Before you contact your lender and get the refinance rolling, ask yourself the following:
- Do you have at least 20 percent equity in your home? If not, you're going to have to pay for private mortgage insurance, or PMI. If you already pay for PMI, the difference in cost may be negligible. But if you don't, the additional payment is an important consideration.
- Is your credit good enough? If your credit score falls below 620, you will likely have trouble qualifying for a new mortgage. If it's below 720, you probably won't qualify for an optimal rate.
- What are your financial goals? Today's refinance mortgage rates may be tempting, but remember that it's important to integrate your mortgage with your overall financial plan. Lowering your monthly payments or reducing overall interest payments and paying off your home faster are great goals. However, experts recommend contributing to college and retirement savings and paying off debt before committing to a shorter, more-expensive home mortgage.
- Do you plan to stay put? With today's refinance mortgage rates, borrowers can expect to pay between 3 percent and 6 percent of their loan amount in refinance costs. This means you'll need to plan to stay in your home for at least as long as it takes to recoup these costs, or your refi doesn't make financial sense.
- What are your current loan terms? If you currently have an adjustable-rate mortgage, or ARM, now may be the time to switch to a fixed-rate loan. But if your current loan has a prepayment penalty, refinancing might be cost-prohibitive.
- Do you have a second loan? It is typically more complicated for borrowers with a line of credit or second mortgage to refinance their home. If you have a second loan, you might have to pay it off, combine both loans or convince the second loan lender to remain in position behind the first mortgage lender.
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