If you are a homeowner who has already taken out a mortgage, you understand that most of your repayments go toward paying interest on the loan. Refinancing your mortgage can help you benefit from lower interest rates, shorter loan terms, and a better repayment schedule.
However, before beginning the process of refinancing your home loan, it’s important to understand the additional costs involved. Being organized and prepared can help you secure the best rates and make the process as straightforward as possible. Here are six tips to save you time and money when refinancing your mortgage.
Know What Refinance Plan You Want
Set some financial goals and determine what you want to get from refinancing your credit union mortgage or FHA loan. Some of the most popular reasons for refinancing include:
- Reducing monthly payments
- Reducing the loan term so you can pay it off faster
- Taking advantage of lower interest rates for increased savings
- Taking out lines of credit through the home equity built from your existing mortgage to invest in home improvements
If you want to reduce monthly payments to make your mortgage more affordable in the short term, you must focus on securing the lowest possible rates over a longer payment term. If you want to minimize the amount of interest you pay over the entire course of the loan, your focus should be on reducing the mortgage rate and term length.
Determining your financial goals helps you to decide which type of refinancing plan you need. The two main types of refinancing plans are cash-out refinance and rate and term refinance.
Cash-out refinance allows you to receive a cash sum based on the equity you have earned from previous mortgage repayments. With this type of agreement, you can also negotiate a lower interest rate and shorter loan term. Whatever cash amount you take out is added to your repayment total. However, it is repayable at your newly negotiated rate.
Rate-and-term refinance involves renegotiating the details of your current loan with a mortgage lender to find better interest rates and renegotiate the length of the loan term.
The best time to refinance a mortgage is when interest rates drop significantly (1% to 2%), your credit score has improved, you want a shorter loan term, the value of your home has increased, or you want to change from an adjustable-rate mortgage to a fixed-rate loan.
Improve Your Credit Score
Your credit score is one of the most important factors when negotiating a mortgage refinance because it influences what interest rates you qualify for.
A low credit score makes you a risky investment, increasing the likelihood of a high-interest rate and less favorable terms if you are approved. A high score shows creditworthiness and helps convince lenders that you can be trusted to meet payment deadlines.
Credit scores of 700 and above are desirable for securing good refinancing agreements. Scores of 760 and above qualify you for the best rates and terms.
You are entitled to receive a free copy of your credit score every year from one of the three credit reporting agencies, Equifax, Experian, and TransUnion. Before refinancing, request a copy of your report and examine it closely for inconsistencies. Occasionally these documents contain incorrect information due to administration errors or fraud.
Tips for improving your credit score include:
- Don’t miss payments
- Manage credit card bills and debts
- Regain control over past-due accounts
- Maintain a healthy debt-to-income ratio (28% or lower)
- Check your report for errors or fraudulent activity
Get Advice From Financial Experts
As member-owned financial institutions, credit unions are often the best sources for refinancing. T&I Credit Union is a Detroit-based lender focused on improving customers’ lives through competitive rates and outstanding member services.
As well as offering extremely competitive interest rates for mortgage refinancing, we support our customers through financial counseling.
We can pull your credit score, find areas for improvement, and help you to qualify for lower refinancing rates. Our free counseling teaches members how to raise their credit scores, eliminate debt, and secure lower payment deals. We also offer several additional services to assist with financial management:
- Online account tracking on easy to use dashboard
- Online calendar for planning and budgeting
- Loan and debt trackers
- Mobile app
Lock In Your Interest Rate
Low interest rates are the most common reason for mortgage refinancing. Securing a reduced rate helps you to save money on interest, can reduce your monthly payments, and also allows you to build equity on your home much faster.
Lenders allow you to lock interest rates for a specific period of time, typically between 30 and 60 days. This protects you from rising interest rates throughout the lock period.
If interest rates drop during your lock in period, you can’t unlock your rate. Ask your lender about a float down rate, which does cost an additional fee, but may be worth it if rates have dropped significantly.
Another potential scenario some homeowners encounter is being unable to close before the lock in period expires. To extend the locked-in rate, you may have to pay a small fee, typically .0375 percent of the loan amount.
Factor in Closing Costs
Closing costs are additional fees that cover the underwriting of your mortgage, taxes, insurance, and title and record filings.
The most cost-effective way to cover closing costs is to pay for them upfront as a one-time expense. Anticipating these costs and making sure you have enough money to cover them can save you time and money in the refinancing process.
While you may be able to finance these fees by including them in your loan repayments, they will incur interest throughout the life of the loan, increasing the overall cost.
At T&I Credit Union, we charge below-average closing costs, ensuring administration fees are as affordable as possible.
Choose the Right Lender
Banks and credit unions are the two main options for mortgage refinancing. There are many advantages to choosing a credit union as your lender, particularly if you are searching for the lowest possible interest rates.
A credit union serves its members rather than stakeholders. They are not-for-profit organizations, so they can afford to offer lower mortgage rates with fewer service fees than most banks. It’s important to remember that even a marginally lower interest rate can significantly reduce the amount you pay over the loan’s entire lifetime.
As customer-centric institutions, credit unions offer personalized services and often work with borrowers with low credit scores. The not-for-profit status gives credit unions more flexibility than banks for approving loans and refinancing.
Although credit unions require borrowers to become members, this is usually a straightforward process. Joining a reputable financial institution, like T&I Credit Union, comes with unique benefits such as reward schemes, financial counseling services, and flexible payment plans.
At T&I Credit Union, we allow borrowers to skip a payment once per year, ensuring you can prepare for holidays, a child’s graduation, or go on a vacation without the financial stress of repaying their loan that month.
Customer Focused Mortgage Refinancing With T&I Credit Union
If you’re interested in refinancing the mortgage of your Michigan-based home, contact T&I Credit Union. We offer financial planning advice and personalized support to find you the best loan terms possible.
T&I Credit Union offers competitive interest rates for 15 and 30-year mortgages, low application fees, and charges below industry average closing costs to minimize the cost of refinancing.
To speak to a loan officer about your refinancing goals, give us a call today at (248) 588-6688.