Remortgages make up almost half of all mortgage applications. Here are some things you can do to get ready if you want to refinance your home loan:
- Find out what the interest rates are now.
Tradition says that you should refinance your home if the interest rate drops by at least two percentage points from what it is now.
But even if the current interest rate is only 1% or 1.5% lower than your current rate, you can still save money over the life of your mortgage. If your interest rate doesn't go down by at least 5/8 percent, remortgaging won't save you enough money to be worth the cost.
- Think about how long you'll be living there.
When deciding whether or not to remortgage, you should think about more than just the interest rate.
You should also think about how long you plan to live there. You need to stay in your home long enough to get back the money you spent on refinancing.
If your new interest rate is 1.5% lower than your current rate, you usually need to live in your home for more than three years for the fees to be worth it.
- Look at your credit score.
Before you fill out any loan applications, check your credit score. You can take a little time to fix any problems with your credit before moving forward. This is especially true if there is information on your credit report that is out of date or wrong.
It's a bit of a hassle to send the letters and keep up with the correspondence, but if someone offered to pay you $1,000 (the amount you'd save if you got a better deal), you'd do it!
- Find out how much your home is worth.
You will need to get an appraisal of your home. But for now, just look at how much similar homes in your area have sold for. Since you bought it, has the value of your home gone up or down?
- Decide if you want to get cash from the value of your home.
If the value of your home has gone up, you can remortgage for more than you owe and get cash to pay for school, a vacation, home improvements, or to start a new business.
I would only use such money to start something that would make money or to pay for a child's education. It's much better for your peace of mind to have low monthly expenses than a fancy vacation or car.
- Make sure you have enough money to pay for the costs of refinancing.
You will have to pay the same fees and costs as when you bought your home for the first time. These include a home appraisal, closing costs, and other fees and points. Also, you might be able to refinance without paying any points or closing costs, but your interest rate might be higher. And there's no reason to refinance if the interest rate is going to go up.
- Talk to lenders.
You should talk to several lenders to find out how much money you will need and what the current interest rates are. Then, figure out what your new payment would be if you remortgaged and how long it would take to pay back the costs.
- Change the length of your mortgage.
When you remortgage, you can change the length of time you have to pay off your loan. You might have started out with a 15-year mortgage, but now you want to switch to a longer loan term so you can get more money every month. Or (much better), maybe you want to cut the length of your mortgage from 30 years to 15 or even 10 years and pay it off faster. That sounds good, doesn't it?
