Sponsored by: Residential Home Funding Corp
As a kneejerk reaction, most financial advisors and mortgage lenders will likely say something like “As often as you can if it saves money.” As a homeowner, a good rule of thumb is to check in with your lender every six months—or when rates decrease by half of a percentage point.
A homeowner should also keep an eye on the housing market and the value of their home, the clincher is when the loan-to-value parameter makes it favorable to refinance. Also, take a minute to ponder the loan purpose. Was your last mortgage a cash-out refinance or a rate and term refinance? When it comes to refinancing, making smart decisions rests on understanding the type and amount of your current loan. There are other things to think about.
When considering refinancing:
- Have a clear idea of your closing costs, and then figure out how many months it will take before the money saved in monthly payments covers these costs. Keep in mind that just because there’s a monthly payment reduction or a lender credit of some sort, doesn’t necessarily mean it makes sense to refinance your home mortgage.
- Know about any early payoff fees, and whether your current mortgage has a prepayment penalty. If you have fees and penalties, check to see if the original lender will help you avoid the charges.
- Keep an eye on the escrow and ask your lender if you’ll need impound account monies. During the refinancing process you’ll still have expenses like property taxes and homeowner’s insurance. It depends on your timing, but your first installment property taxes will be included on your loan estimate at the closing table. You may be paying taxes before they’re due, and while Uncle Sam will smile, as a homeowner you’ll likely appreciate the heads up.
If you haven’t had a mortgage transaction since October 1, 2015 be prepared there’s a different process to closing mortgage loans. The new model, as initiated by the Consumer Financial Protection Bureau, mandates that borrowers be more actively involved. There’s an e-consent that alerts borrowers to various consumer and financial disclosures. There’s also a closing disclosure that the lender will forward three days before the final settlement; this too must be acknowledged and executed online.
As a homeowner you can refinance as often as you want—and you should do so as often as it makes fiscal sense.