When to Refinance a Mortgage: Comparing Rates
Getting the best deal on refinancing is tricky because of the number of variables involved. By planning ahead, deciding what you need from your loan and doing equivalency calculations, you can overcome these issues and get the deal that's right for you.
Decide on Your Goals
Before you even look at the rates offered by finance companies, examine your current mortgage terms and decide what you'd like to change. Many people prefer to pay less per month, and finding a lower interest rate can achieve that without impacting the length or overall cost of your mortgage negatively. But lower monthly payments sometimes mean a longer term, leading to a more expensive loan overall, so make sure that's not the case with the companies you're investigating.
If you want to pay more off your mortgage to increase your equity and reduce the amount you pay in interest, include any overpayment charges that the loan company adds to your comparison rates. This helps you avoid nasty surprises when you pay off chunks of the principal.
Compare Apples to Apples
Because mortgage rates vary widely based on loan terms and a variety of other conditions, make sure that you ask each lender you want to compare for the exact same product. This includes factors such as loan length, fixed or variable rates, and whether fees are rolled into the amount due or paid separately. You also have to work out how the fees for each provider compare and whether higher fees are worth a lower interest rate over the term you require, for example.
Once you know what you're looking for in your loan, several online tools are available for you to use. Websites such as BankRate.com have multiple mortgage calculators that you can use to input the interest rates and other important factors of the loans you are considering. The companies that you are considering for your refinance often also offer online tools to simplify the calculations, including overviews of monthly payment amounts, overall costs, and any effects on the term of the loan from overpayment or other amendments.
Although online resources are useful and important, don't forget your local resources. Credit unions and regional banks often have less online presence than national banks and direct lenders, but depending on your circumstances, they may have better deals for your needs. Investigate what these local businesses can offer you. Use an online tool that lets you input the details of the loan to see how any offers compare to national rates.
Once you've paid a mortgage for a couple of years, refinancing is often an attractive option. Whether your goal is to reduce your monthly repayments, maximize the equity you have in your home or reduce the overall cost of your mortgage, there's likely a product that meets your needs, as long as you meet its application criteria.