Should You Refinance Your Home in 2017?

Should you refinance your mortgage in 2017? Here's how to tell.

Deciding whether or not to refinance your mortgage is complicated in the best of times. But with the unknown looming in 2017, the question is even messier than usual.

Many experts and economists are predicting rising interest rates this year. Kiplinger, for instance, predicts that the average 30-year fixed-rate mortgage will rise to 4.6% this year. That’s still a fairly low rate compared with other points in history. But rising rates may have homeowners like you wondering if they should refinance sooner rather than later.

If you’re currently paying higher-than-average interest on your mortgage, you may want to consider refinancing this year before the interest rates rise. Of course, you’ll also need to factor in your credit since that’ll determine the rate you’re offered when you go to re-fi (more on this in a minute). You can view two of your credit scores for free on Credit.com. They’re updated every two weeks, and checking your scores won’t harm them in any way.

Here are some questions to ask to determine whether or not to refinance your mortgage this year:

1. What Interest Rate Will I Qualify For?

It’s important to figure out what interest rate you’re likely to qualify for. One way to do this is to check out a mortgage rate calculator, which will take some basic information and give you a likely APR for your mortgage.

The only way to find out for sure how much a mortgage will cost you, though, is to shop around. Check out different online mortgage lenders, as well as traditional bricks-and-mortar options. Remember, if you apply to refinance your mortgage with several lenders within a few days’ time, it’ll only count as one hard inquiry on your credit report.

What should you do if your credit score is on the low side? Consider taking some time to boost your credit score, especially if you can do it relatively quickly by paying down credit card debt. However, you’ll need to weigh the benefit of having a better credit score when you refinance against the possibility that interest rates will balloon before you can refinance.

2. How Much Will Refinancing Cost?

As with buying a home, there are usually closing costs involved when you refinance. Some lenders offer no closing cost refinances, which can save you a bundle up front. However, loans without closing costs may charge a higher interest rate. And even so-called “no closing cost” refinances may have some fees due at closing.

Generally, though, closing costs on a refinance will be similar to closing costs when buying a home. You’ll need to pay credit fees, appraisal fees, escrow and title fees, and other fees imposed by your lender. Overall, you can estimate closing costs to be about 1.5% of the total loan principal.

If you’ve got enough equity in your home, you may be able to roll closing costs into the overall principal amount. But you’ll still wind up paying these fees one way or another.

3. When Will I Break Even?

Calculating when you’ll break even is the essential piece to deciding whether or not you’ll refinance. Since you have to either pay up front or roll refinancing costs into your loan, you need to know how long it’ll take to get that money back.

To calculate your break-even point, you need to first find out how much money per month the refinance will save you. Then, calculate how much it will cost. Divide the total cost by the savings per month, and you’ll see how many months it will take to break even.

For example, say you expect to pay $3,000 to refinance your $200,000 mortgage. You’ll save $175 per month when you refinance. So your break-even point is about 17 months. Once you’ve paid on the refinanced mortgage for 18 months, you’ll be saving money overall.

4. How Long Do I Plan to Stay in My Home?

Generally, refinancing your home is a winning proposition any time you stay in your home longer than your break-even period. In the above example, you’ll come out on top if you own your home for at least 18 months after you refinance.

Of course, the longer you own the home after your break-even month, the more money you’ll save because of your refinance.

If you’re not reasonably sure you’ll own your home through your break-even month, refinancing won’t be worth your while. But if you think you’ll stay in your home, refinancing could save you a lot of money over the long haul.

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8 Things to Consider Before You Refinance

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How Often Can I Refinance My Mortgage?

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Though it may come as a surprise, there is no limitation to how frequently you can refinance your home. You can refinance as often and freely as you like so long as it financially makes sense to do so. Here are some things to consider before you move to refinance your mortgage.

1. What Are the Closing Costs?

Are you throwing good money after bad? If you recently paid fees on your last mortgage, you may lose out by refinancing again just a short time later. A big payment reduction or a lender credit refi-scenario, however, can help make things worthwhile.

2. Will There Be an Early Payoff Fee?

An early payoff (EPO) fee is not to be confused with a prepayment penalty. A prepayment penalty prohibits you from prepaying any of your principal without incurring a penalty before the specified timeframe is up. An early payoff fee is paid to the originating mortgage company on a loan that only lasts on the books for just a few short months. An early payoff fee can generally be charged if the loan is only up to six months old, but can be imposed in timeframes as short as three months. You may be able to work with the original lender, however, to avoid being charged as they can typically absorb any early payoff fee.

Mortgage Pro Tip: Mortgage companies know financial circumstances change as does a homeowner’s need to borrow money. If your financial circumstances have changed, it is your right as a homeowner to refinance your house.

3. Will You Need Impound Account Monies?

Impound accounts are set up by your lenders to pay off expenses like property taxes and homeowner’s insurance. For instance, if you are refinancing your home from Feb. 1 through April 10 or from Oct. 1 through Dec. 10, first installment property taxes will be included on your loan estimate at the closing table. Let’s say, for example, you bought your home in June. That same year interest rates dropped and you decide to refinance your house just few months later. Your closing is slated for Nov. 1. As a result, your escrow company is going to collect first installment property taxes even though they are not due until Dec. 10. Title/escrow companies are required to collect for the first installment and second installment of property taxes when refinancing in those calendar months. The previous loan transaction you may have completed earlier in the year may not have collected for a tax installment as it may not have been due at the time.

4. Will Your Closing Process Be Different?

Was your last mortgage transaction before Oct. 1, 2015? If it was, plan for a different mortgage loan closing process. The Consumer Financial Protection Bureau’s most recent change to the closing process now requires a borrower to be more involved. The closing process, for instance, now requires borrowers to e-consent to various consumer and financial disclosures. Additionally, a closing disclosure is now sent by the lender three days before your final settlement, which also must be acknowledged and executed online. While these changes are meant to make it easier for a borrower, some consumers might find the process of consenting to online disclosures a little irksome. However, it’s the new way mortgage loans are originated.

Here are some other factors to evaluate.

  • The housing market. Your home may have appreciated in value from the last mortgage transaction, potentially moving you into a different loan-to-value parameter and subsequently creating a financial opportunity.
  • Loan purpose. If you previously did a cash-out refinance in excess of $417,000, you might benefit by refinancing again into a rate and term refinance. On loan sizes greater than $417,000, there is a substantial pricing difference from a cash-out refinance loan-to-value requirement versus a rate and term refinance loan-to-value requirement.
  • Rates. Even as little as a 0.25% reduction in your interest rate can make a difference — If you can negotiate with the lender to pay your closing costs, you’re likely benefiting. It helps, too, to have a good credit score, since they generally entitle you to better terms and conditions on a mortgage. You can see where you stand before you refinance by pulling your credit reports for free at AnnualCreditReport.com and viewing your credit scores for free on Credit.com.

The decision to refinance depends on your circumstances — and your ability to make a sound choice when evaluating them. Furthermore, it can help to stay in regular communication with your preferred lender. Checking in every six months can be worth the effort, as interest rates are always in flux and underwriting is slowly beginning to loosen.

More on Mortgages & Homebuying:

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