Mortgage refinance tips and tricks

Taking out a mortgage in order to become a homeowner can be a scary process for many people. But once you get the ball rolling, you’ll realize that time passes faster than you have anticipated and, soon enough, you’ll pay off a considerable sum of money. That’s when you can think about a mortgage refinance that allows you to pay off your old mortgage by replacing it with a new loan that usually has better interest rates. At Consumer Opinion Guide, we believe that a mortgage refinance can be a great thing – but only if you do it with care and caution. More importantly, you need to have all the important pieces of information before you venture into unknown territory. In the next few minutes, you’ll get the basic tips and tricks about the topic which should set you on the right path.

Decide why you want to take out a new mortgage

Taking out a new mortgage instead of the old one isn’t something that you will decide to do in the spur of the moment. More importantly, it isn’t something you should do without a lot of thinking and consideration. Usually, there are a few common reasons why people decide it’s the right time to pay off their old mortgage and replace it with a new one, and they include:

• The chance to lower either your interest rate or monthly payments. 
• Managing to pay off the loan faster.
• Tapping home equity for certain household improvements or other reasons.

What is home equity?

Understanding your home equity is a crucial thing if you are thinking about taking a cash-out mortgage refinance. In the simplest words, home equity presents the percentage of your home that you already own and have paid off. Naturally, with every monthly payment that you make, your home equity goes up. That being said, you have the option of taking some of this equity in cash in case you need to pay some debts, cover home repairs, or pay your child’s tuition fees. Just have in mind that most lenders will allow you to take out 80% to 90% of your equity at the most. That’s why you need to know how much of your principal balance you have paid off and you’ll have a general idea of how much money you can borrow.

Check your credit score and LTV ratio if you are interested in mortgage refinance

Do you remember the process and checks you had to go through when taking out a mortgage the first time around? Then you must remember what seems to be the most important term of all – your credit score. Your credit score number can be anywhere between 300 and 850. Obviously, the better the score, the better the rates. While a credit score that is above 740 will most definitely get you the best rates and conditions, you will still be able to take out a refinance if you have a score that’s below that.

The second important thing that needs to be thought about is the LTV or loan-to-value ratio. The LTV ratio measures how much of your home’s value you want to borrow and the number is presented in percentages. Of course, since smaller loans are always better, the less percentage you need to borrow, the better.

Knowing what your credit score and LTV ratio are will help you understand whether or not you are eligible for mortgage refinance. You probably won’t be able to take out a new mortgage if your credit score is too low (under 580). The good news is that you can always work on improving your credit score and becoming eligible for a loan down the line.

Plan for the closing costs

There’s simply no way around closing costs. They are usually equal to 3% to 6% of the total loan amount which can amount to a lot of money if you are taking a bigger loan. You have two options – you can either pay off the closing costs yourself or you can opt for no-closing-cost refinances. The second option includes taking out higher interest rates in exchange for not paying the closing costs. When it comes to the experience of our company, we always find it better to pay off the closing costs right away. Even though the no-closing-cost refinances sound appealing, they usually end up costing more in the long run.

Of course, if you need to take out a new loan and can’t afford to pay the closing costs right away, it’s definitely worth looking into the no-closing-costs option. By making sound financial decisions, you’ll most likely manage to pay off the loan even with higher interest rates.

Compare different lenders when taking out a mortgage refinance

Think about it. Whenever you make a bigger purchase, you always compare a few of your options. It’s only natural to want to get the best possible product/service for the best possible price. It should be no different when shopping for a mortgage refinance. In fact, gathering quotes from at least three different lenders should be high up on your to-do list. You have a few options at this moment.

For starters, you can call different lenders on your own or you can use an online calculator. The important thing to remember is that no matter which option you choose, you need to contact the lenders on the same day. Since rates change daily, you’ll want to have an accurate account of the quotes. After you do a thorough comparison of the different lender quotes, you should have no problems spotting the right option for you. And that should mark the start of the process.