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Optimal Finance Daily - Financial Independence and Money Advice
3492: [Part 2] Should I Refinance My Mortgage by Scott Rieckens of Playing With Fire on Long-Term Mortgage Planning
00:08:58
Scott Rieckens explains how refinancing a mortgage can accelerate the path to financial independence when done strategically
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This is Optimal Finance Daily Should I Refinance my mortgage? Part 2 by Scott Rickens of PlayingWithFire co. Is it better to refinance with your current mortgage company? You can refinance with the same lender, and there are some advantages to doing this. First, your relationship with them may make it easier to go through the process and finish refinancing quicker. They already know you and may not require quite as much documentation to complete the refinancing. They may also offer lower fees than other lenders, especially if they're eager to keep you as a customer. But refinancing with your current lender won't always be the best choice. If your lender isn't offering competitive interest rates and you're not getting a break on fees, sticking with your current lender isn't a good idea. The goal here is to reach FI faster, and if your current lender isn't the best one to help you get there, it's time to jump ship. Do your best to avoid personal relationships getting in the way of your financial future. A lender who doesn't offer you the best rate isn't worth your loyalty. How to refinance your mortgage Mortgage refinancing is a simple process, but it can be time consuming to pick a lender and submit the final documentation they need. Here are the general steps you'll walk through when you refinance your mortgage. Set your goal for refinancing what's your goal for refinancing your mortgage? Are you hoping to take advantage of low interest rates and save money on your mortgage, or are you planning to change your ARM and lock in a fixed interest rate? When you figure out your goals, you'll be able to better assess your lending options. Check your credit history before starting the mortgage refinancing process, Check your credit history. Lenders will check your credit before approving you for refinancing, so it's important to know that what's being reported on your credit history is accurate. You can pull your credit history for free using annualcreditreport.com check it for errors and dispute anything that isn't correct. Doing this before you apply will help you avoid surprises during the lending process. Research lenders There are a number of places you can look for a mortgage. Research your options and the types of lenders you might want to work with. Lending options Credit unions Credit unions often have more flexible underwriting standards, so they can offer mortgages to people who might have lower credit scores or smaller down payments. You might also find that they have lower fees and offer a more personalized service. But you usually have to qualify for membership before joining the credit union, so you'll need to find a credit union you qualify for. Banks Unlike credit unions, with a bank you don't need to be a member to have a mortgage. You also will probably find more up to date technology than with a credit union. And if you're working with a large bank, you'll have access to a network of branch locations. Mortgage companies Also Sometimes Referred to as a direct lender, a mortgage lending company specializes in mortgages and doesn't offer other services. They aren't really that much different from a bank, but you might find slightly more relaxed qualifications with some of the lenders. Another option is to work with a mortgage broker. These aren't lenders, they're intermediaries that help borrowers find the right lender for a mortgage and may help facilitate the underwriting process. Compare rates and fees Lenders don't all offer the same interest rates and fees. That's why you should get quotes from multiple lenders to make sure you're getting the best deal. But it can get a little confusing keeping track of what each lender charges while trying to make the best decision about which loan will save you the most money. That's why our favorite tool for comparing lenders is Credible. Credible is an online mortgage broker, which means they help you find the right mortgage for you. You don't have to fill out multiple time consuming applications to get rates from different lenders. With Credible, you'll fill out just one application and you can compare rates from multiple lenders. Plus, the lenders Credible works with don't charge prepayment penalties or origination fees so you won't be surprised by the end. Cost and Credible is free to use and won't affect your credit score. Choose a Lender Once you've compared rates and you've found a lender that offers interest rates and fees that you like, it's time to complete the application process with them. Your lender will ask for a lot of documents to verify your income, so be ready with your W2 paystubs and tax returns. Final approval can take time, so anticipate that your refinancing process will take at least 30 days to complete. Once it's complete, your old loan will be paid off and you'll begin making payments on your new loan. Final Thoughts Mortgage refinancing can be a great tool to help you lower your monthly mortgage payments and pay less in interest, but making sure you're getting the best rate and not overpaying in fees does take due diligence and research. Take your time to crunch the numbers and make sure that the decision you make helps get you one step closer to fi. You just listened to part two of the post titled Should I Refinance My Mortgage? By Scott Rickens of PlayingWithFire.
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Terms apply thanks again to Scott for outlining these considerations when refinancing I wish I would have read an article like this before I looked into refinancing in 2020. I really only got one quote and quickly determined that the cost of refinancing wasn't worth it. Looking back, I wish I would have put a bit more effort into evaluating more options because once I left my corporate job, I became less appealing to lenders. Lenders seem to care mostly about income. Another thing to consider when you're reviewing all the costs and trying to see if a refinance makes sense is to calculate the break even point. This is the point at which it starts making financial sense to refinance and take on the terms of a new mortgage. To determine the break even point, you divide the cost of refinancing by the amount you save every month. The result is the amount of time it would take you to break even on the deal. So, for example, let's say you save $50 per month by refinancing, but the loan comes with $5,000 in closing costs. It would take you 100 months or a little over eight years to break even. If you stay in your house beyond the break even point, you save on the loan. And that's a wrap for another Monday show. Have a great rest of your day and start to your week and I'll be back tomorrow as usual, where your optimal life awaits.