Before signing a contract, you should think about the closing costs for home refinancing. If you're not careful, you can lose money on closing costs. You can find lower fees by shopping around for lenders, but you might find that other ways to get money cost less.
How long it takes to get your money back
A good rule of thumb is to keep a loan for two years to make up for the costs of closing, but this isn't a hard and fast rule. First of all, refinancing won't save you money if you only have five years left on your loan because you've already paid most of the interest. There are also other reasons to refinance, like shortening the terms or improving the caps on an adjustable-rate mortgage (ARM).
Do some math to figure out if you can save money by refinancing. Add up the interest costs on your mortgage for the rest of the term. Compared to the cost of refinancing and the cost of interest on the new loan, this is a good deal. If you can save money by switching to a better rate, you should do so.
Lenders Charge Different Fees
People are usually surprised to learn that different lenders have different fees. Costs are usually in the thousands, but points can also make them go up. Since rates and fees vary so much from package to package, the APR is a better number to compare because it shows how much the loan really costs.
When you do research online, you can save a lot of money. A mortgage broker can give you a few different quotes in just a few minutes. You can also request quotes from individual lenders' sites too.
Different ways to refinance
You can change your mortgage in a number of ways. You can get an ARM, a fixed-rate loan, or a hybrid loan. To lower interest costs, you can also shorten the length of your loan or make more payments each year. Each choice has pros and cons that you should think about based on your budget.
You can also use a line of credit or home equity loan to get at your equity. There are no closing costs with these two options, but the rate on your principal doesn't go down.
Before you refinance, do research on both the loan and the lender to make sure you will save money.
