Thinking of Refinancing? 10 Questions to Ask Yourself First

Refinancing a mortgage could be a huge money-saver. And even if refinancing doesn't save you money, it could be worth doing for other reasons. But before you make that call, ask yourself these important questions.

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Mortgage rates have risen sharply since the start of the year. If you already have a low interest rate on your mortgage, you may not end up with a better rate by refinancing.

ALSO READ: Current Mortgage Rates: Still Competitive Today

Hoping to refinance to a new 30-year mortgage? Expect to pay upwards of 5%. Before you move forward with a refinance, do some research and see what rates you're looking at. You may decide to hold off until borrowing rates drop.

When you refinance a mortgage, you pay closing costs to finalize that loan. Those closing costs could amount to up to 5% of your loan amount, so you'll need to make sure you intend to stay in your home long enough to come out ahead financially.

ALSO READ: How Much Should You Budget for Closing Costs?

Maybe your goal in refinancing is to lower your monthly housing payments. Or maybe you want to take cash out of your home. Either way, it's important to have a game plan before moving forward.

If your goal in refinancing is to access your home equity, you may not need a new mortgage to do that. You could instead look at getting a home equity loan or line of credit (HELOC).

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The higher your credit score, the more likely you'll be to qualify for a competitive interest rate on a refinance. If your credit score could use some work, it pays to make an effort to boost it and then apply for a refinance.

ALSO READ: Will Carrying a Large Credit Card Balance Hurt Your Credit Score?

If you're a few years into paying your mortgage and refinance to a new loan with the same term, you'll restart the clock on your repayment schedule.

So, you'll need to make sure that doesn't get in the way of your goals. It could, for example, cause you to be unable to get your home paid off in time for retirement.

Home values are up on a national level. If your home value has increased, it may be a good time to do a cash-out refinance -- even with borrowing rates for refinances being higher.

ALSO READ: Should You Do a Cash-Out Refinance in 2022?

Refinancing is a big decision, and one you shouldn't rush into. If you don't have time to seek out offers from multiple refinance lenders, you may want to hold off until you're able to do more research.

Closing costs on a refinance can be substantial, especially for a larger loan. Before you move forward, figure out how you'll cover those fees. You may opt to just pay them up front. Or you may decide it makes more sense to roll those fees into your loan and pay them off over time.

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Refinancing could make a lot of financial sense, but it's important to think through that decision before diving in. This especially holds true today, seeing as how refinance rates aren't nearly as attractive as they were a year ago.

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