Thursday, September 13, 2012

When to Refinance Your Mortgage

How do you know when to refinance your mortgage? There are a lot of factors that go into refinancing your home that could save you thousands of dollars over the life of your loan. Here are my top three suggestions to consider when refinancing.

1. Credit Score
Your credit score plays a large part when it comes to refinancing your home. 9 out of 10 credit reports that I see can be improved by doing small little things such as paying a little bit extra on your revolving accounts to get the balance below 50 percent of the available credit.

Although mortgage rates in Minnesota are near historic lows, improving your credit score can lower the rate you are qualified for by a quarter of a percent which can save you thousands over the life of your loan. Take the extra time that is needed to improve your score as mortgage rates usually do not change dramatically overnight.

2. Term of Your Mortgage
There is a lot of consideration that should be taken when determining whether a 15 year fixed mortgage or a 30 year fixed mortgage is correct for you.

Although a 30 year mortgage does give you the flexibility of having the lowest overall monthly payment, you will pay a considerable amount more in interest over the life of the loan. However, the interest paid can be reduced by making extra payments towards your mortgage.

If you are tight on cash, a 30 year fixed mortgage may be the best option for you, however, if you are not strapped for cash consider refinancing into a 15 year or even 20 year fixed mortgage. On a shorter term mortgage you still have the option of making extra payments towards you mortgage saving you even more in interest over the life of your loan.

3. Mortgage Rate
The mortgage rate you receive on a refinance can be the largest factor into how much you save over the life of your loan. However, be sure to weigh the options of potential savings in costs on a higher rate loan.

For example, a $100,000 loan at 4 percent over 30 years would add up to total payments of $171,871. If you were to take a 4.25 percent rate and received an additional $3,500 in credit towards your loan and had a new loan amount of $96,500 your total payments over 30 years would be $170,899, saving you about $1,000 over the life of the loan.

In summary, make sure you get your credit score up to par so that you can take advantage of the lowest mortgage rate on the best term possible when it comes to refinancing your home.

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.
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