The lure of low-interest rates and reduced monthly mortgage payments are enough to entice homeowners to refinance. Before deciding to restructure your home loan, take a look at whether doing so is beneficial over the long term or if it will cost you more. 

What to Consider Before Refinancing a Mortgage

1. Review Your Credit Score

When you initially took out a mortgage, your credit score was most likely high. However, financing a car loan, maxing out credit cards, and taking on additional debt can potentially lower your score.

Before refinancing, review your credit reports from all three credit bureaus. You’re entitled to one free report for all of them each year. A score in the yellow or red range will result in a higher interest rate on your new mortgage.

2. Check Your Home Equity

Most lenders require you to have home equity as a condition for refinancing. If you have at least 20%, you’re typically in good shape for approval, but this equity threshold varies with each lender. Some government home loan programs may not require any equity. Ask your mortgage broker about the equity qualifications for a variety of programs so that you have refinancing options.

3. Assess Long-Term Savings

Refinancing a home loan with lower interest rates provides a reduced monthly payment. However, you may have to get a mortgage with a longer timeframe. To pay less interest with the refinanced loan, consider securing interest rates and a shorter loan term. 

4. Calculate Fees & Points

It typically costs between 3% and 5% of the total loan amount to refinance. You can avoid paying this out-of-pocket fee if you have enough home equity. Depending on the lender, the processing fees can be rolled into your new loan; others may waive the fees. Points, which are generally 1% of the loan amount, can also be assessed. Find out if you’ll have to pay before refinancing or if the points can be rolled into the new loan.

Refinancing an existing home loan has its benefits. Let Kevin Currier - Loan Officer at CMG Financial - NMLS#1550600 in Chattanooga, TN, help you determine if this option is best for you. The mortgage broker has extensive experience processing conventional mortgages and FHA loans. He takes the time to assess your financial needs so that you’re comfortable with your lending decision. To learn more about refinancing, call (423) 991-0095. Visit the website for extensive information on the agency’s products and services.