Thinking that your mortgage is a lifetime contract is reasonable. Buying your home is one of the major commitments you can have, but it’s okay to look into your mortgage regularly.
At some point, you might find that our mortgage doesn’t fit your situation anymore. That’s when you need to refinance for you to adjust your loan terms. But aside from this, how to know when to evaluate your mortgage? Read more to find out.
Significant Drop in the Mortgage Interest Rates
When the interest rates on property loans are dropping significantly, that’s the best time to evaluate your mortgage. Since the interest rate plays a major role in determining the amount of money you’re paying for your home, you should seek a more favorable one. Locking into a loan with high rates may lead you to overpay for your mortgage.
So to save money, you might need to refinance to a loan with much lower interest rates.
Note that even a few percentage points can make a huge difference in the amount of money you can save.
But how can you tell if the current interest rates are more favorable than what you pay now?
First, inspect your current rate. You might find it on your initial loan documentation if you have a fixed-rate loan or your mortgage statement. Contacting your lender to ask about your current rate is also advisable. Once you find your current rate, compare it to the average market rate for your loan type.
Your Credit Score Increases
Aside from waiting for your interest rates to drop, having a higher credit score than it was when you got your loan is also a good technique.
Mortgage lenders care about you having a good credit score because it represents how well you manage your debt. If you have a high one, then it says you always pay your loan on time and that you don’t borrow too much.
When your score is low, it might mean that you’re having trouble managing your debt.
Since a mortgage is also a form of debt, your lender will look at your credit score before the lender offers you an interest rate. They need to know how you are as a borrower. If you have a high score, then your home is less likely to fall into foreclosure. It means that the lender takes less risk when they let you borrow money. That’s why they can give you a lower interest rate.
If your score is low, then there’s a higher chance that you might not be able to pay back what you’ve borrowed. There’s more risk for the lender’s part, and that’s why the lender will give you a higher interest rate on loan.
The good news is that you’ll a good credit score when you pay your mortgage on time every month. So if you haven’t checked your score, then you might be in for a pleasant surprise!
So look into your current numbers and compare them when you signed your loan. If the numbers are higher when you applied, then refinancing might be a good idea.
Your Lender Contacts You
As you’re paying your loan and building your equity, you’re also creating a stronger profile as a borrower.
That’s why your lender might want to contact you with offers to refinance. They’ll reach out to you if you qualify for lower interest rates. So consider both your current loan and your lender’s new loan before you say yes to refinancing.
You Plan On Selling
If you’re planning to sell your home, then taking a look into the terms of your mortgage loan is advisable. You’ll need to check if there’s any repayment penalty clause included in your mortgage terms.
A prepayment penalty is an amount you pay if you pay off your mortgage too early. Having them can mean problems if you want to sell your property after you’ve lived in it for only a couple of years.
Since lenders only make money as you make interest payments for a long period, then you selling the property means terrible news to the lender. The prepayment penalties help discourage you from paying ahead or selling too quickly. So, find out if your contract has this clause written to avoid further payments.
If you find the prepayment penalty clause, don’t sell your property until you fully understand the math and how much money you’ll lose.
You Have Financial Difficulty
Having trouble making your monthly loan payments may mean that you need to refinance. Refinancing might demand money in closing costs, but it can help you lower your monthly payments.
You can have a lower monthly payment by refinancing to a longer-term. When you have a lower payment each month, there’s a smaller chance that your property will fall into foreclosure.
Your Current Lender Doesn’t Satisfy Your Needs
Note that your mortgage lender should be one of your assets throughout your home buying and mortgage repayment process. So if your current one doesn’t meet your needs or don’t respond to your inquiries as they should, then you might need to refinance to a new and more favorable lender.
So, how do you find a better mortgage lender?
Find a lender that your family and friends recommend. The mortgage lender should have a high client satisfaction rate. When trying to browse online, make sure that you’re reading from reliable sites with trustworthy reviews.
Knowing when to evaluate your mortgage can help you save money throughout your loan term. So ask yourself if one of the reasons listed above mirrors your current situation. Contact your lender more a more detailed and personalized advice.