4 Signs Refinancing Is The Wrong Move
Refinancing your mortgage can bring your interest rate down, lower your monthly payments and generally save you some money. With rates still low, you may be pondering whether nowâs the right time to try for a better deal on your home loan. But you donât want to pull the trigger too soon. If any of the following apply to you, you may want to think twice before jumping on the refinancing bandwagon.
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1. Your Creditâs Not in Great Shape
Refinancing when youâve got a few blemishes on your credit report isnât impossible, but itâs not necessarily going to work in your favor either. Even though lenders have relaxed certain restrictions on borrowing over the last year, qualifying for the best rates on a loan can still be tough if your score is stuck somewhere in the middle range.
If you took out an FHA loan the first time around, you might be able to get around your less-than-spotless credit with a streamline refinance, but approval isnât guaranteed. Interest rates are expected to rise toward the end of the year, but that still gives you some time to work on improving your score.
Getting rid of debt, limiting the number of new accounts you apply for and paying your bills on time will go a long way toward improving your number so that when you do refinance, youâll be eligible for the lowest interest rates.
Related Article: refinance closing costs.
3. A No-Closing Cost Loan Is Your Only Option
If you donât have a few thousand dollars to spare to cover the closing costs, you can always look into a no-closing cost loan. With this type of refinance, the lender folds the costs into the loan itself so you donât have to pay anything extra out of pocket. While thatâs a plus if youâre short on cash, you may be really putting yourself at a disadvantage in the long run. Increasing your mortgage (even if itâs just by a few thousand dollars) means youâre going to pay more interest over the life of the loan.
For example, letâs say you refinance a $200,000 mortgage at 4 percent for 30 years. Altogether, youâd pay $143,000 in interest if you donât pay anything extra. Your closing costs come to 3 percent but you roll them into the loan so youâre refinancing about $206,000 instead. That extra $6,000 would cost you another $11,000 in interest so you have to ask yourself whether the monthly savings from refinancing justify the overall added expense.
4. Compare Your Refinance Loan Options
Once youâre ready to refinance, itâs important to take the time to compare whatâs available from different lenders carefully. Checking out the rates and fees each lender charges ensures that you wonât spend any more money on a refinance loan than you need to.
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