With interest rates still low, you may be wondering if now is the right time to refinance your existing mortgage. And if it is, who can you talk with and what can you expect as you go through the refinancing process?
Start by understanding your current situation. Determine how many years you have left on your existing mortgage and the current interest rate you are paying. Review your credit report, and fix any errors you come across. You also should know your credit score.
After you have a clear picture of your current mortgage situation, ask yourself what is your goal of refinancing. Is it to lower your monthly payment or lower your interest rate…or both? If you have 20 years remaining on your mortgage, refinancing into a 30-year mortgage at a lower interest rate could still result in higher total interest expense because you have extended your loan another 10 years. If you don’t need to extend the mortgage term to make payments more affordable, look at shorter refinancing terms. Remember, you have to plan to be in both the house and the loan for a while to have refinancing make sense.
Next, see where current mortgage rates stand. Rates change daily — sometimes multiple times in a single day — so don’t start looking at rates until you know you’re in a position to move forward with refinancing. Bankrate posts a weekly Mortgage Rate Analysis as well as a Mortgage Rate Trend Index. The Mortgage Rate Analysis tells you where rates are, and the Mortgage Rate Trend Index tells you where mortgage experts think rates are going. You can have both delivered as an e-mail alert.
If now is the right time for you to refinance, start talking with lenders. Begin with the bank that has your current mortgage, as they will be more likely to work with you if you have established a history of making on-time payments. If you want to look at other options, talk with banks in your community who are familiar with the local market. If you’re going to comparison shop among mortgage lenders, you want to do it in a relatively short period of time — less than a month — so your credit score in not negatively impacted by the comparison shopping.
For additional support, take a look at the Federal Trade Commission’s Looking for the Best Mortgage: Shop, Compare, Negotiate website that offers more tips and useful information for both purchasing and refinancing.