Mortgage rates have fallen to unbelievably low levels, and many borrowers are landing 30-year home loans at under 3%.
If you’re a homeowner with an existing mortgage, you might want to consider refinancing — even if your current loan is only a year old. More than 16 million mortgage holders are ripe for a refi, according to one recent study.
Refinancing at today’s record-low rates could save you a few thousand dollars a year in interest, and tens of thousands of dollars over the course of your loan.
If you think it might be time to replace your mortgage with a new one, here are four tips to make sure you get the most out of your refinance.
1. Be certain a refi is the right move
Before you commit to a refinance, there are a few important things you need to consider. Today’s basement-dwelling mortgage rates may look good on paper, but depending on the terms of your existing mortgage, you might be subject to loan conditions that could make refinancing a bad call.
Some mortgages carry a penalty for early repayment, especially during the first few years. You also could run into legal complications if you took advantage of a local government grant program, like one for first-time buyers.
Before you start looking at refinance loans, read your mortgage documents carefully to be certain you won’t get dinged with exorbitant fees.
You also need to make sure a refinance now won’t end up costing you more in the long run.
If your current mortgage is for 30 years and you’ve already paid off half of it, refinancing into a new 30-year fixed-rate mortgage could cost you tens, or possibly hundreds of thousands of dollars in additional interest. It might be smart to go with a 15-year loan instead.
2. Talk with a pro
The best way to be sure refinancing is the right decision is to consult with a professional. An online financial planning service will give you top-of-the-line financial advice without the high fees.
In addition to providing you with advice on your refi, a certified financial planner can help you create a retirement savings plan that’s tailored to work with your mortgage.
That way, once your home loan is fully paid off you can rest easy knowing you’ve already got a chunk of change stashed away for your golden years.
A simple 30-minute call can get you thinking about your financial goals and priorities — and how a refinance can help you achieve them.
3. Compare rates to find the right loan
Some 16.3 million homeowners are sitting on old mortgages with rates so high that they could save an average $283 a month by refinancing, according to the mortgage data firm Black Knight.
With mortgage rates so low, you might be tempted to jump at the first refinance offer that comes along. But shopping around and comparing rates could wind up saving you even more on your new monthly payment.
You can always do it the old-fashioned way, by researching local lenders and contacting them individually about their rates — but that could eat up a lot of time. A better option is to go online, gather quotes from at least three lenders, and compare them.
Do an easy side-by-side comparison of lenders’ interest rates, loan terms and monthly payments, and look at user reviews for each bank, credit union or loan company to help inform your decision.
Checking mortgage rates will never impact your credit score. If you’re planning to refinance, you owe it to yourself to shop around and find the best rate available.
4. Protect your investment — and your family
After you choose your new loan, take a fresh look at your homeowners insurance. Are you paying too much? Go online, get several home insurance quotes, and make sure you’ve got the right coverage at the right price.
And while it isn’t pleasant to think about, the possibility that something unexpected might happen to you — personally — is important to consider as a homeowner. You want to make sure your family won’t have to worry about how they’d make the mortgage payments in the unlikely event of your death.
The best way to make sure your family will be financially secure is to take out a life insurance policy. The idea of shopping for life insurance might seem a bit uncomfortable, but a good online comparison site can make the process painless.
In just minutes, you can find the three best rates for your family’s specific needs. Depending on how old you are and where you live, you could find a policy that offers your loved ones $1 million in financial protection for less than $7 a week.
It never hurts to be prepared. And even though you can’t put a price on peace of mind, you’ll know that you’re getting the best coverage available.