Refinancing comes with a lot of benefits but it can still hurt your finances if you don’t do your homework. That’s why it’s so important to take a minute and ask yourself some questions before you refinance. The answers will help you understand both your own needs and how a new loan will affect you.
Four questions to ask yourself before you refinance
1. What do you know about your lender?
Your lender is just like any company out there. It too is looking only for profits and, no matter what their ads say, you shouldn’t believe that they only have your best interest at heart. Fortunately for us, the consumers, we now live in a world where information is easy to find. If you want to find something about a lender, you can just go on social media and see what other people have to say about them. Or you can search the internet for reviews.
The time you spend doing research will pay off.
2. Do you have a plan? If so, what is it?
If you plan to sell your home and move in the near future, then you shouldn’t refinance. Or maybe you should do it, if you’re happy with your current home and expect to remain there for a long time.
Refinancing without needing to refinance can cost you. Don’t forget that. That’s why it’s important to have a plan.
3. What about the fees and extra costs that come with refinancing?
Many people forget about these when they refinance. In the end, they end up paying much more and actually losing money. If you want to avoid these unpleasant situations, then you need to look at the fees and extra costs and factor them into your refinancing calculations. Don’t be afraid to use a mortgage calculator, it can prove really helpful. If the results show you can save money, then go for it. Otherwise, it’s better to shop some more or put off refinancing until the time is right.
4. What about your interest rate?
For most people, this is the main reason for refinancing. Don’t be afraid to shop around. This extra work might just get you a better offer, one that could save you a lot more money.
But don’t forget about the length of your term. If you have just a few years left on your current loan and you replace it with a 30-year one, you will end up paying more over the entire duration of the new loan.