7 things to consider before refinancing your home

7 Things to Consider Before Refinancing Your Home 

Key takeaways:

• Honing in on why you want to refinance can help you decide if it’s a smart financial option.
• If you’re thinking about refinancing your home, avoid opening new lines of credit as that will drive down your credit score.
• Many people think of the benefits of refinancing without seriously crunching the numbers to determine the drawbacks, which is why talking with a banker is important.
• Educating yourself on what is available and what loan would be best for you can help you make a more informed decision about refinancing.

As a homeowner, you’ll likely come to a time when you will feel like it is a good idea to refinance your home. After all, it could help you reduce your monthly payment and pay off your loan faster.

Before you begin thinking about refinancing your home, you should consider the costs involved along with your long-term plans for the house.

It is also important to note that loans are subject to credit approval.

We’ve put together a list of seven items to consider before refinancing:

1. Is your home ready for appraisal?

Do you think your house is in a finished state that would be appraised well? If your home is currently under construction or you’re planning a renovation soon, you should likely wait on refinancing until your home is in a finished state. 

2. Do your research

Determining the best time to refinance your home mortgage can take some time and effort, but if you educate yourself on market trends, your research might help you save a lot of money on your mortgage. You want to go through the refinancing process at a time when interest rates are lower than what you have on your current mortgage.

3. Determine why you want to refinance

Do you currently have a variable interest rate, and you’d prefer a fixed interest rate? Do you want to switch from a 30-year mortgage to one that is shorter?

You might even want to refinance so you can get cash out for more home improvements such as landscaping. Or do you want to refinance so you can take out equity to pay off debts? Understanding your end goal is crucial in determining if it makes financial sense. Remember – refinancing doesn’t eliminate debts – it simply restructures them.

4. Seek out a mortgage lender

Find a reliable mortgage lender who you trust and has your best interest at heart. Your lender should spend time with you discussing your long-term plans and help you consider the best financing options based on those plans. For example, one of the things to think about is how long you will be staying in the property.

They’ll also help you understand the different types of mortgage loans that are available. When your lender better understands your purpose, they can help you select which loan is right for your financial needs.

5. Check your credit

Gather your credit reports from the three main credit reporting agencies (Equifax, Experian and Transunion) or https://www.annualcreditreport.com/ and check your reports for accuracy. If you find inaccuracies, visit this site to immediately begin the process to correct them. Your credit report impacts your credit score, which in turn influences your refinancing. Your credit score plays a large role in whether you can get approved to refinance as well as your interest rate, so you’ll want your score to be as high as possible.

6. Stop applying for new credit and creating new debt

If you plan on refinancing your home, don’t open new credit cards or department store cards. New lines of credit can drive down your credit score.

Likewise, if you have other large purchases such as a car in the works, don’t shop around until after you have refinanced. Credit inquiries can affect your credit score. Each time your credit report is pulled, it assumes new debt and can drive down your credit score temporarily.

7. Crunch the numbers

Determine if refinancing is really going to benefit you. If you’re switching from a variable rate loan to a fixed loan, estimate how much you will likely save. Do the same thing if you’re opting for a shorter-term loan. Remember that refinancing will cost you in terms of fees and closing costs too. Talk to your lender, discuss your options and calculate whether the numbers will result in an honest benefit.

Refinancing a home is a big decision. While it takes time to determine the best options for you, it can be well worth the effort. If you have questions about refinancing your home, visit your local MidWestOne branch.

MidWestOne Bank does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

MidWestOne is pledged to the letter and the spirit of the United States policy for the achievement of equal housing opportunity throughout the nation. We encourage and support an affirmative advertising and marketing program in which there are no barriers to obtaining housing because of race, color, religion, sex, handicap, familial status or national origin.