How do you know if the time is right to refinance your home? To find the correct answer, you must first understand what refinancing is: paying off your existing mortgage and creating a new one. There is good news for homeowners looking to refinance now, specifically better terms, and since you’ve already been through the process, there should be few surprises.
Many homeowners in New Jersey and around the country are taking advantage of historically low interest rates to refinance, effectively reducing their monthly mortgage payment or changing the length of their mortgage term. Here are a few pieces of advice for those who may be thinking about a refinance.
Know What You Want
One of the first questions you should answer is, “What type of mortgage do I want?” Two common residential loans are fixed and adjustable rate mortgages. Depending on your situation and needs, refinancing can allow you to take advantage of each option’s unique offerings.
Most banks, including NVE, offer a fixed rate mortgage. With this option, the interest rate is constant throughout the entire loan term. The biggest advantage is that you know exactly what the interest and principal payments will be for the mortgage length. This helps to facilitate your budget planning, and provides a sense of long term stability.
Adjustable rate mortgage loans, or ARMs, have an interest rate that may change at predetermined intervals. The borrower is protected by a maximum interest rate (called a ceiling). ARMs usually start with lower rates than fixed rate alternatives to compensate the borrower for the additional risk that future interest rate fluctuations may create.
There are several other options to consider, including FHA loans, VA loans, balloon mortgages, interest-only mortgages, and reverse mortgages. This list from USA.gov offers an overview of the pros and cons of each option.
Organize Your Documents
Because of today’s lower interest rates, the volume of applications is higher than usual. Therefore, it is imperative that borrowers have all the proper paperwork ready to go. A full list of what you will need can be found in a recent NVE blog post on preparing to apply for a mortgage. To streamline the process, it’s helpful to keep all this documentation in one place—preferably electronically—so you’ll be able to send it off with a few clicks as soon as the lender requests it. The faster your do your part, the faster your lenders can do theirs.
Mortgage calculators are available to help determine the effect of refinancing. These tools can be very helpful, as long as you input the proper information. NVE’s Refinance Break-Even Point calculator helps determine the number of months before you start reaping the financial benefits of refinancing. Simply input the amount of your current monthly mortgage payment, new loan amount, new interest rate, loan term and closing costs, and you’ve got your answer. Other home loan calculators are also available on the NVE website to assist in calculating various payments, savings, and rates.
Ask and You Shall Receive
Ask your bank about any of their current or upcoming refinance promotions. You could benefit from cash incentives or rebates, like NVE’s current $549 Cash Back at Closing offer (exclusions apply).
Don’t feel you need to handle this process all on your own. Before making any decisions, we highly recommend meeting with a mortgage professional to help you determine if refinancing makes sense, and if so, which option best fits your lifestyle. You can take advantage of professional insight from NVE’s award-winning Mortgage Specialist by calling 201-816-2800 ext. 1233 or e-mailing email@example.com. You can also visit your convenient neighborhood branch.