Refinancing your mortgage can be a smart move for many homeowners. This is especially true if you have a loan with a high rate because you bought your home before rates dropped recently — or because your credit wasn’t lower when you made your initial home purchase.
But, before you move forward with refinancing, there are a few key steps you’ll need to take to ensure it’s the right financial decision for you. Here’s what they are.
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1. Find out the closing costs
Refinancing your mortgage is not a free process. There are fees to pay, including loan origination costs, appraisal and survey fees, and more. The fees associated with refinancing — called closing costs — can total several thousand dollars depending on which lender you choose.
Lenders need to disclose these costs up front when you apply for a loan, so make sure you know what to expect. You’ll either need to pay these closing costs up front — so make certain you have the cash available — or you will need to borrow for them and roll them into your loan amount. This means your loan will cost more over time.
While some lenders offer “no-closing-cost” refinances, this usually means you’re either borrowing to cover closing costs or your interest rate is higher to cover the fees, so don’t assume the loan is really free.
You’ll want to make sure the money you save by refinancing will cover these closing costs over time before you move forward. This is especially important if you think you might move soon. For example, if you pay $3,000 in closing costs and save $50 per month on your home loan, it would take you 60 months or five years to break even on the closing expenses. So if you planned to move in two years, for example, refinancing might not be the best move.
2. Shop around for rates
Refinance rates vary …….