When you’ve first signed your mortgage, it may feel like everything is set in stone, but for homeowners, this is far from the truth. The decision to refinance your mortgage gives you the option to save on interest, take some time off your loan term, or cash out on your equity. However, before you refinance there are a few signs you should look out for.
A lower interest rate is possible when you refinance your mortgage.
Mortgage interest rates fluctuate constantly. If the rates are currently lower than what you are paying, you may want to consider refinancing. It is worth taking the time to check the updated interest rate and compare it to your initial rate. Remember, your credit score determines your individual interest rate, meaning a lower rate isn’t always promised.
Your credit score has improved.
If you’ve been working on rebuilding your credit, refinancing could benefit you. The higher your credit score, the better. Keep in mind, individual lenders determine the worth of your credit score, so individuals with a score that falls above 700, typically receive the lowest rates, but it is possible for you to get a great deal even if your score between 600 and 700.
You’ve seen a jump in income.
An increase in income can be great if you’re looking to refinance to a shorter loan term. Going from a 30-year mortgage to a 15-year term can save you thousands of dollars in interest. However, you should be aware that you’ll pay more towards your mortgage each month.
You have concerns about your ARM adjusting.
Adjustable rate mortgages vary over the life of the loan. The rates depend on not only market conditions, but also the type of loan you have. Some ARMs adjust once a year, while others adjust after five or seven years. In most cases, you’ll pay less interest with an adjustable rate mortgage, and have lower monthly payments, early in your loan term.
The most unsettling thing about ARMs is when it’s time for the loan to adjust, interest rates and payments may skyrocket. Refinancing and switching over to a fixed rate mortgage may be a good option for you if you’re worried you won’t be able to afford your payments when your loan adjusts.