Your mortgage can easily be your biggest monthly expense. Depending on your situation, you may be able to reduce that burden by refinancing your mortgage.
It’s not complicated, but it takes time to get it done so it’s smart to go over the numbers and see if it the right move for you.
Reasons to Refinance Your Mortgage
Refinancing is a basically replacing your current mortgage with more favorable terms and rates. Some practical reason to want want to refinance include:
Lower Interest Rates: You can drastically reduce the amount of interest you pay over the term of mortgage. That money saved can be used for other financial goals, like investing or starting a business.
Lower Monthly Payment: Refinancing can help you if you’rd on a tight budget. Please keep in mind that there are closing costs to consider (though it’s possible with some lenders to roll them into the new loan). For those with 20% or more equity, you may want to refinance to not only save money on interest, but to also get the PMI remove. You don’t have to refinance to get the PMI removed though.
Pay off the mortgage sooner: Cutting down on the length of the mortgage can also save you a ton of money in the long run. The trade off is that you may have to pay just a bit more each month.
When we were looking to refinance years ago, we loved the idea of paying the lower interest rate. Any time you can save ten of thousands in interest payments it’s worth taking a look!
However there is more to the refinance progress that you two will need to talk about.
Should You Go Ahead Refinance Your Mortgage?
No one is going to care about your hard earned money like you do, so while it’s nice to have a lender run the numbers, you always want to do that yourself as well.
Interest Rates Between The Old and New Mortgages: You may feel that lower interest rate is automatically better, but you may not get much benefit. A small drop in your interest rate may mean that the refinance is more hassle than it’s worth. However if you can shave a percentage point or more you may be able to keep the same payments with your bill pay, but apply the difference towards your principle.
Proposed Mortgage Terms: Sometimes we forget that refinancing can reset mortgages to another 30 or 15 years (meaning plenty of your payments goes towards interest for those first few years), so it might not be prudent to jump into another one. On the other hand, if you have ARM mortgage, getting a stable fixed rate one can allow you two to plan your finances a little easier.
Estimated Closing Costs: This is another mortgage, so there will be closing costs. Some lenders will roll that into the new mortgage, but you still need to factor that in before you choose to move forward.
Once you two weigh these costs along with the benefits, you can then decide if refinancing is a good deal or if it’s better to hold off until another time.
If you decide to refinance, one of the biggest things you can do to save money is to shop around to make sure you’re getting the best rates.
They came through and one of their mortgage loan officers took the time to answer my questions about buying a home and getting a mortgage that works with your budget.
(Note: Minor editing to make format it for this post)
Saving Enough to Buy a House
While saving for a down payment is a necessary step if you want to buy a house you can afford, there are other expenses you need to be aware. Preparing ahead for these costs will make the process go a lot of smoother for the two of you and your budget.
What mistakes have you seen first time home buyers make when purchasing?
Failing to plan. We encourage you to sit down with a lender first before starting the homebuying process. Get preapproved before you shop
Not working with a good realtor. Have a buyer’s agent, rather than calling the seller’s agent on a the sign from a home you saw
Not getting all the recommended inspections. Again, a good buyer’s agent can guide you through the process, and help you choose the inspections that will best protect you
Not Tapping into your network. Look to family and trusted friends for recommendations for both your lender and an agent.
Besides the down payment, what are some typical costs that home-buyers needs to plan and save for?
turning on utilities
maintenance items / tools
sometimes there are repairs that are needed that the sellers didn’t cover
One bit of advice we give our members is to avoid buying things before closing, especially if you are using credit, because the added credit balances could affect their final credit check prior to closing the mortgage. Consider whether they have to buy out the remainder of a lease if they are renting.
For a couple looking to buy there first home, how would you advised them to plan? What numbers should they think about and run BEFORE they shop around for a lender?
Start with the lender in order to get an understanding of how much home you can realistically afford. Go in knowing how much you spend on household and reoccurring expenses now, including rent; how much they owe on other loans and what your disposable income is .
Shop lenders for the first time homebuyer program that works best for you. Look for a lender that’s willing to hold your hand through the process.
Mortgage Interest Rates, APRS, Origination Fees, and Points
Besides saving for your house, it’s important to understand all the terms of your mortgage. That means becoming familiar with the jargon that lenders use.
When shopping around looking at various lenders’ sites, typically I see the interest rate and APR given. What exactly is the difference between the two?
APR is a tool to standardize the comparison from one loan to the next. It is the annualized cost of the loan, including all of the interest and lender’s fees. The CFPB recommends that borrowers should always use APR for the best comparison. The interest rate is a component of APR.
What are origination points and how do they work?
Origination and points are two different things. Origination is the lender’s fee and covers a variety of the services they provide in preparing the loan. Fees range from 0 to 1% of the total loan. Discount points are prepaid interest and are used to buy down the rate. Both origination fees and discount points vary from lender to lender.
Thoughts on Buying a House
What other questions do you have about buying a home or mortgages?