Smarter Mortgages: The Top Tips for Refinancing Your Home

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Thinking about refinancing your home?

A house payment is one of the biggest monthly payments that people face and it can take its toll on a family's budget. Luckily, refinancing your mortgage can be of great help to make the burden easier to bear. If the timing is right, it can do a lot of good for making home payments easier to manage.

However, if you want to refinance your mortgage you need to keep a few things in mind to ensure you do it right.

1. Determine Your Financial Goals

Different borrowers have different reasons for seeking mortgage refinancing so it's a good idea to think about your own motivations. You should decide exactly what you expect to get out of the refinancing process and know why you're doing it.

Refinancing your mortgage can allow you to save money and may help open up your ability to make other financial investments.

One great reason to refinance your mortgage is to reduce your monthly payments, but there are other reasons to do it as well, such as, getting your entire loan paid off faster. Switching from a 30-year mortgage to a 15-year mortgage can be a great choice that will guarantee you'll pay less in the long run.

You may also want to consider a cash-out refinancing which will allow you to borrow money to deal with other debt such as credit card payments or car payments.

Whatever reason you have for refinancing your mortgage, you should decide what it is before you start your search.

2. Get Life Insurance

Getting a great life insurance policy is critical if you want to have your home refinanced. A term life insurance policy can help protect you in the case that you're the main breadwinner for your household.

A term life insurance policy can prevent your family from losing the home if you pass away before the mortgage amount is paid in full. In the event of your passing, your family will get the proceeds from the policy and can then pay off the remaining mortgage amount so they will be able to continue living in the home.

It's important that you have a great life insurance policy in place if you're refinancing your mortgage.

3. Know Your Options

There are different types of refinancing loans that you can make use of for your mortgage so you'll want to consider your options carefully and learn about each one in detail. For example, a fixed rate loan allows you to refinance with a fixed rate that will not change during the length of the term.  This is the most common and traditional option. There is also an adjustable-rate mortgage (ARM) where the rates are usually lower but can change during the term of the loan. An FHA streamline refinance may be an option as well if you currently have an FHA loan.

Another thing to consider is the possibility of switching to a shorter-term mortgage. Shorter terms may raise your monthly payments but will ensure you pay less on your home in the long run.

Different options are right for different types of borrowers, so make sure you have an understanding of the different loan types. Consider your unique goals and contemplate the details of each option carefully to decide which is right for you.

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4. Move Fast

If you want to get the best rates when refinancing your home you need to act fast and get your application in as soon as possible. Rates can fluctuate up or down so being ready to act quickly will help ensure you are in a good position to get the best rate possible. 

5. Lock In Your Rate

Once you've done some shopping around and are sure that you've found the best rate you're likely to find, then you should get it locked in officially.

It's important to request a written copy of your lock-in rate and get a confirmation to make sure that it won't be changed again. Remember that getting someone's word isn't enough, you need to have it writing.

Once your rate is locked in, however, remember that you'll need to act fast. Rates are often only locked for 30-60 days in length without a fee. Within that time frame, you'll need to be sure you provide every piece of documentation you need to set everything in motion.

6. Keep Your Credit in Mind

It shouldn't be a surprise to learn that your credit score is critical for getting great refinancing rates for your refinance mortgage. As soon as you start considering a refinance for your home you should also start monitoring your credit score to see exactly where you stand.

It's easy to check your score online through various online services. Many banks also provide the ability to check your credit score in your online account as well.

Ideally, you'll want your score to be 740 or more when refinancing a mortgage, but the higher the better. Minimum credit scores for refinancing are usually in the mid-600s.

If your credit is currently less than ideal, you may want to wait  to refinance until you can get your credit score to climb up a bit. This will help you get the best rates and deals once you do refinance your home.

7. Consider Paying Points

Paying points on your refinance before the loan closes is often a good idea and is something you'll want to consider doing.

Points are fees you'll pay at the closing of your mortgage that will allow you to get a lower interest rate on your loan. Having a lower interest rate can be helpful so it can be well worth putting in more money upfront in order to get your rate lowered.

Points are usually worth about 1% of a loan amount. The interest rates on the market can affect how much you'll have to in some situations but, it can be well worth it and will allow you to pay less over time.

Using These Tips for Smarter Mortgages

If you're searching for smarter mortgages and want to ensure you get great refinancing rates, you need to make sure that you think carefully every step of the way. By doing your due diligence when refinancing your home, you'll have a better chance of meeting your financial goals.