While the current environment of low interest rate mortgages bodes well for those looking to enter the housing market, it's also great news for financially-savvy homeowners. According to statistics from Freddie Mac, the going rate for a 30-year fixed mortgage is at its lowest in decades. This provides a great incentive for current residents who are considering a refinance, a move that could end up saving them thousands of dollars over the life of their loan. Although a refinanced mortgage is not unlike any other home loan, there are some special considerations to keep in mind. Come into a refinanced loan prepared, and you'll be sure to reap all the rewards.
When to refinance
At first glance, a refinance seems appealing for its ability to lower the monthly payment on an already existing mortgage. However, according to NerdWallet's guide to refinancing, homeowners need to zoom out and keep things in perspective. While lower interest rates may save you from month-to-month, it will also extend the life of the loan by several years. That could result in even more interest being paid out in the long term. There are also closing costs to contend with, an often-overlooked expense that can add thousands more to a refinance.
Instead of jumping the gun on a refinance, homeowners can take a look at a refinance calculator. NerdWallet has provided an in-depth tool, but Bankrate noted that homeowners can run a simple back-of-the-envelope calculation to determine whether a refinance will allow them to break even. The break-even point can be calculated by adding up the total closing costs and dividing by the monthly savings from a lower interest rate. If the break-even result is longer than you intend to stay in the house, then a refinance may not be the best option.
Lower rates are driving a huge increase in mortgage applications. Time to refinance! https://t.co/XlJTUuykx9 pic.twitter.com/T42i5fokCr
— realtor.com (@realtordotcom) July 7, 2016
Nailing the appraisal
As part of most mortgage refinance applications, an appraiser will need to determine the current market value of the home. While much of this depends on the value of other similar homes nearby, there are still a few things homeowners can do to ensure they get the most out of a valuation.
First, make sure everything looks as good as possible. Appraisers can be swayed by the appearance of a home. Every part of the house, inside and out, should be clean and tidy in preparation.
As soon as the appraisal is scheduled, or even if you're just considering a refinance, be sure to make any repairs that you've been planning. Special attention should be paid to vital systems in the home, like the heating and air conditioning, plumbing and electric components. Curb appeal is important for an appraisal as well. The Appraisal Institute even noted that a little landscaping can go a long way toward improving the overall perception of the home and property.
While appearance is important, any proof you can provide of the home's value will also help a great deal. Homeowners should get in the habit of saving receipts for any improvement projects undertaken since assuming ownership. Property tax documents are also worth keeping. If any major renovations required permits, these should be saved and presented to the appraiser.