What to Know About Your Mortgage Before You Refinance
In order to assess the true cost of refinancing, start by getting out the paperwork on your current mortgage. Here are some questions that you should find answers to:
Does your loan have a prepayment penalty?
Some loans charge a fee for paying off your loan early, either in the form of a flat fee or as a percentage of the loan balance. The penalty is usually triggered when you pay off your loan (by refinancing) in the first three to five years. For example, if your mortgage balance was $220,000 and the lender charged a 2 percent prepayment penalty – you’d be hit with a $4,400 fee for refinancing.
How much equity to do you have?
This is an important question if you are interested in getting a cash-out refinance by trading in your current mortgage for a larger loan. In this scenario, you’d be getting cash based on the equity you’ve built up in your home. To find out exactly how much equity you have, use a home value tool like Domania to estimate how much your home is worth. Then, subtract the balance of your mortgage. (You’ll find your loan balance on your monthly statements.) Keep in mind this is only an estimate – the lender will most likely order an appraisal to give you the true amount of your equity.
What is your interest rate?
In order to figure out how much you could save by refinancing, you need to know what interest rate your current mortgage is. For instance, let’s say you got a mortgage three years ago for $250,000 at 6.50 percent with a payment of $1,580. You want to refinance your current mortgage – $241,043 – at an interest rate of 5.50 percent. Your new payment would be $1,369.
Once you’ve gathered the information on your current mortgage, you can start to plan for your refinance by calculating your new monthly payment and estimating closing costs, including the pre-payment penalty if there is one.
Get Started Now!
- Check Your Credit Report & Credit Score now!
- Start a Loan Request
- Sign up for our News Feeds
- Have Questions? Call 1-800-GET-SMART (1-800-438-7627)
