Although interest rates continue to rise, they are still low and you have probably heard that refinancing could help you save money on your home loan. Even though you are probably focused on current mortgage interest rates, feverishly comparing them to your own interest rate, you need to check your financials first. What are a few important indicators of your financial health that you need to check before you go through the refinancing process?
Check Your Credit Report
During the refinancing process, you will essentially replace your current home loan with another one. Therefore, the lender is going to check your credit report, so you should do so before your lender does. You can request one free copy of your credit report from each of the major credit bureaus every year. Be sure to check your credit report for any mistakes. Correct them before you go through the refinancing process, and maximize your credit score.
Look At Your Most Recent Mortgage Statement
Next, you should also check your most recent mortgage statement. You need to understand your current interest rate, your unpaid principal, and the maturity date of your loan. This will help you figure out if it is worth it for you to go through the refinancing process. You can figure out what interest rate you need to have on the new loan to make it worth it.
Pay Down Other Debt
During the refinancing process, you need to avoid applying for other lines of credit. This includes credit cards. You may also want to pay down other sources of debt to improve your debt to income ratio. This can help you get the best possible terms on your new home loan.
Check Your Home’s Value
Your lender will order an appraisal to check your home’s value. Ideally, it has gone up in value, which will make it easier for you to qualify for a new home loan. There are free tools you can use online to get a quick estimate of your home’s value.
Consider Refinancing Your Home Loan
If you want to save money on your mortgage, it might be worth it to go through the refinancing process. You should reach out to a professional who can help you evaluate your opportunities and make the best possible decision.