Assessing Your Current Mortgage

Before you make the decision to refinance Colorado home loans, you'll want to evaluate your existing mortgage loan. Here is what you will need to do.

Evaluate Your Mortgage in Four Steps

Regardless of your reasons for wanting to refinance, you will have to evaluate your current loan thoroughly before you proceed. This will help you determine if refinancing will really save you any money, and, if so, how much. Follow these four steps in evaluating your home loan.

1. Check out the terms of your loan documents. Gather up the loan documents on your current loan before you refinance Colorado home loans. Find out exactly what your interest rate is and whether the rate is fixed or adjustable. If you have an adjustable-rate mortgage, you will need to calculate how much your interest rate and payments could rise by looking at the index and margin of your loan. Also, find out if your current loan has a prepayment penalty. If it does, figure out how much it is. Some lenders don't charge prepayment penalties, while others might charge up to several months' worth of interest payments.
2. Look at market interest rates. Next you will want to compare your mortgage's rate with current rates. You could save thousands of dollars per year, depending on your mortgage terms, with a rate reduction of just 1%-2%. Ideally, the current rate should be at least 0.5% lower than your existing rate for you to realize any substantial savings. Before you refinance Colorado home loans, also keep in mind that you don't automatically get the lowest market interest rate on your loan. Your rate will also be contingent upon your credit score and the ratio of your loan to your home's appraised value.
3. Ask yourself how long you plan to remain in your current home. Do you plan on moving in the next few years or are you settled in your current house for a while? The answer to this question could profoundly impact your decision to refinance Colorado home loans. If you plan on moving in the next five years, you might be better off not refinancing. In general, the longer you stay in your home, the more you will save by refinancing.
4. Calculate a breakeven point. You will need to compare the costs of a potential Colorado refinancing loan with the potential savings to determine a breakeven point. For example, if your new mortgage will cost you $2,000 but will save you $200 per month on your payment, then it will take ten months for you to break even. Remember that you can also save on long-term interest costs by refinancing to a loan with a 15-year term from a loan with a 30-year term.