When you refinance your home there are a lot of facets that come into play, many of which can and do alter the final amount of the home mortgage. Because there are so many different components to a mortgage, it’s imperative that you pay close attention to those that can drive your price up. As a general rule of thumb most homeowners want to secure FHA low refinance rates, but if you’re not looking at all the factors and watching how they interact together, you may be losing money. Here are a few areas that you should be aware of when refinancing.
Your Credit Score and Finances
As a homeowner you know that your credit score impacts your bottom line. This is pretty much understood across the board. The lower your score, the higher your refinance rates. On the flip side, the higher your score, the better FHA low refinance rates you can secure. Your finances come into play here as well. If you have a poor payment history or a spotty work history, you may be looked at as a bit of a risky investment, so your rates will more than likely increase. The reason all this is mentioned here is because it’s important to clean up your finances prior to refinancing. By taking the steps to portray yourself as a low risk investment, you may be able to reduce the interest rate.
The Details Matter with FHA Low Refinance Rates
The interest rate is an important piece of the refinance, but it’s not the end all and it shouldn’t be the only factor considered. As a homeowner you will have to pay on the refinance for a long time, so you’ll want to look at how the interest compounds, the annual percentage rate (APR), points, fees, the rate you’re locked in at, pre-payment penalties, closing costs, and the type of refinance you’re doing.
So we’ll start with interest and all the components that come into play with it. First, the rate itself. If you are able to qualify for FHA low refinance rates you’re off to a good start. However, you need to find out when that rate will compound. When interest compounds the mortgage amount is multiplied by the interest rate and the total is then added to the home mortgage. This repeats itself every time the mortgage is compounded. Over time you’ll end up paying thousands of dollars in compounded interest. Finding out when and how often the interest compounds is imperative. If it compounds monthly you’ll be paying more than if it compounds quarterly or bi-annually. Along these same lines you have the APR, which is the annual percentage rate and is a combination of all of the fees. Low APR’s are at least as beneficial as low refinance rates, so pay close attention to this as well.
An additional item that all homeowners need to be aware of is the prepayment penalty. Not every mortgage has a prepayment penalty, but you want to know whether or not yours does prior to refinancing. This penalty won’t drive up your interest rate, but it will drive up the cost of the refinance because you will have to pay it before you can switch lenders. As a side note, if you choose to pay points on your refinance you’ll pay a little more up front, but you may reduce the interest rate by doing so. If you intend to stay in the mortgage long term paying points up front can be a smart move.
Oftentimes there are steps you can take as a homeowner to reduce your rate and bottom line. While paying attention to all the details, be sure you get enough quotes to compare these details. Financial advisors suggest that you get multiple quotes from a variety of lenders, including your original lender. It’s also important to get these quotes on the same day or within two days of each other because the rates fluctuate so often in the real estate market. After you get these quotes compare them with your original mortgage and with each other, paying attention to all the details mentioned above. Also, if you can get the lender to lock in the rate for a certain period of time, do so. Again, the rates fluctuate often in the real estate market so if your rate isn’t locked in with the quote, you may not be able to go back to the lender and get it a second time.
Refining your home is a financial investment and it can have a major positive impact on your finances, as long as you take the time to do it right. It helps to have a clear idea of what you want and a good loan officer on your side so make sure you get all your ducks in a row before you contact the lender for a refi.