7 Questions to Ask Before Refinancing a Home

So, you’re considering starting on the path to refinancing a mortgage. Good idea! It’s a great way to reduce your monthly payment, shorten your term length and free up cash for other expenses. But this complicated endeavor, if not done correctly, could actually cost you.

Before heading to a lender, here are seven questions to ask yourself before refinancing your home:

1. What are the benefits of refinancing a home?

   There are several advantages to refinancing your mortgage. The most common include reducing your overall monthly loan payments, paying off your mortgage faster, using your home's equity to pay off debt faster and using that same equity to quickly acquire cash for other expenses.

    

   That being said, you need to dive a little deeper before you choose from the vast array of refinance options available.
    

2. How much equity do I need in my home?

   You need to have at least 20% equity in your home to qualify for a new loan without paying private mortgage insurance (PMI)—so, aim for that number if you plan to refinance.

    

   If you're not quite at 20%, speak to your lender about different federal loans that may help lower your payment.
    

3. How will refinancing my mortgage change my monthly payment?

   Depending on your home equity, credit score and financial institution, refinancing could lower your monthly payment significantly. But before you sign new loan documents, do your homework and make sure your savings will cover the closing costs and associated refinancing fees.
    

4. How much will it cost to refinance my mortgage?

   Different lenders put different fees into their loan contracts. Some common fees include appraisal, initiation, closure and cancellation fees. Pay close attention to the fine print before you sign anything. This is where you’ll see the final fees charged. Be sure to add them all up and, as stated above, compare them to any perceived or implied savings.
    

5. Does refinancing my mortgage hurt my credit score?

   Having a good credit score can certainly help you get a better interest rate on a refinanced mortgage. Fortunately, refinancing shouldn't negatively impact your score unless you've had several inquiries in a short period of time or repeatedly opened and closed loans. Avoid taking on more debt around the time you want to start your mortgage refinance application so that the impact on your credit score is minimal.
    

6. How will interest rates affect my mortgage?

   Federal interest rates play a big part in refinancing. Generally, you only want to refinance if interest rates are 1–2% lower than your original loan. That might sound insignificant, but it could save you thousands over the life of the loan. A well-refinanced loan should result in a new loan with a significantly shorter term length and no spike in monthly payment.
    

7. How long do I plan to stay in my home?

   Refinancing takes a lot of time and effort. If you don't plan to stay in your current home for a few more years, consider if it’s worth it. You'll want to stay long enough to offset any upfront costs, of course, but you'll also want to make sure your new loan's term limit aligns with your future plans.

Ready to refinance your home?

Use our free mortgage refinance calculator to see how much you could save when you refinance with Mountain America Credit Union.

Whatever your mortgage needs may be, we can help you achieve your financial goals. We’re here to guide you forward.

Apply now