Interest Rates have come off their lows, and home prices are up sharply. Is this a good time to refinance your mortgage? We say it is, but as with all things financial, complexity is high, mistakes can be costly, and there is no “do-over” option. Planning before executing can save you time, trouble, and cash. Approach the refi process as a fee-only financial planner approaches a complete Financial Plan.
Step 1 is Suitability:
- The refi process is not free, and not everyone is eligible for a beneficial refinancing
- Potential economic rewards must be determined before taking the leap
- Interest rates--both your current rate and prevailing market rates--need to be compared
- Considering the remaining term of your existing mortgage, would the costs justify the savings?
- Determine your priorities, i.e., shorter payoff term, lower interest rate, reduced payments, fixing a variable rate, taking cash out, elimination of PMI, etc.
- Establish all parameters for a loan, then proceed as though they can all be met
- Determine your credit score (FICO), which you can obtain from any of the 3 large Credit Bureaus: Experion, Equifax and Transunion
- Until April 20, 2022, through com, all three are offering weekly credit reports free of charge
- If your FICO score is above 760, you should receive a preferred interest rate, and if not, you might pay a somewhat higher interest rate
- Should your credit score need improvement, there are methods available online to help you add points
- Establish a relationship with a reputable mortgage broker, credit union, bank, or online mortgage originator
- Discuss all fees and closing costs with your selected mortgage professional to determine the best combination for you
- Get an appraisal with a lender-acceptable appraiser
- When a selection has been made and the lender is on board, lock in the interest rate, and get it writing
- Complete the formal application and start gathering financial data
- There will be a home inspection, and repairs are nearly always required, so plan ahead
- Any mortgage lender will give you a comprehensive list of documents and data required for closing the loan, and you will need to furnish each and every one of them
- In many cases, a competent Financial Advisor can assist with data gathering
- Be patient, as we have seen refis that didn’t go to closing because the applicant got fed up with the process and simply walked away
- If your Suitability, Discovery, and Goal Setting processes tell you that the process is worthwhile, it will most likely get you through the tedium and rigor of the process
- Prior to closing, read all documentation, check the numbers, and try to avoid surprises
Saving money is the quickest and easiest way to make more money. Just don’t run headlong into the refi process without doing your due diligence and bracing yourself for a bumpy ride. Remember that refinancing lasts for a long time, but it comes at a hefty price that can be paid upfront or over time. And don’t try to hide anything financial, they will find your closet skeletons.
Van Wie Financial is fee-only. For a reason.