Home refinancing is common among homeowners looking to cash out a portion of their equity, take advantage of lower market interest rates, or get a longer repayment term. Whatever your reasons for refinancing your mortgage loans are, you should ensure you get it right. As you know, home refinancing can be complicated, and it's up to you to ensure you're successful.
If you're considering refinancing mortgage loans, here are some tips you should follow.
Have a Refinancing Goal
It's evident that most people lack clear-cut goals when opting for a mortgage refinance. You'll find people refinancing with the sole aim of getting a lower interest rate. But is that a good reason to opt for home refinancing? Well, it depends! However, having a refinancing goal will help you choose the ideal loan type. Below are the common types of refinance mortgage and when each can come in handy.
- No closing cost: Great when you can't afford closing costs
- Cash-out: Ideal when you need cash
- Cash-in: Ideal when you want to build equity for home refinancing
- Streamline: Great when you don't want an appraisal
- Rate-and-term: Ideal if you want to do a regular refinance.
Know Your Credit Score
Before you proceed to apply for a refinance, get to know your exact FICO Score. Institutions will have to consider this score before they decide whether to offer you a loan. Besides, the score will determine the type of loan you qualify for and your interest rate.
So, ensure your credit score is high, as it will help you get a favorable loan. Besides, you want to ensure that your credit report doesn't have mistakes that might affect your score. If you have got a bad credit score, work hard to improve it before you consider applying for home refinancing.
Get Quotes from Various Lenders
Refinancing your mortgage doesn't necessarily mean you should use the same lender. You should be open to trying other lending companies as you never know which ones have the best closing costs and interest rates. Ask the potential companies to give you their quotes and the annual percentage rates (APRs). The APR should give you a rough idea of what you'll pay on your new mortgage.
Understand Your Equity
If you plan to take a cash-out refinance, you should know how much equity you have in your house. Your equity grows every time you pay your mortgage loan. In simple terms, equity is the amount you have paid off to clear your mortgage loan. If you have good equity, you can opt for a cash-out refinance, as it allows you to take a portion of your equity in cash.