Refinancing your mortgage can help you save a substantial amount of money over time or make mortgage payments easier for you. However, if you don’t do it right, refinancing could become an expensive mistake. If you are considering refinancing, here are certain things you need to take into consideration.

Know Your Credit Score

If you want to refinance to a loan with a lower interest rate, it’s a good idea to check your credit score. If your credit score has improved since when you got your mortgage, you may be able to qualify for a lower interest rate on your new loan.

Understand The Costs

Keep in mind that refinancing will likely cost you some money. In most cases, refinancing a loan can cost anywhere between 3%-6% of the loan amount. You may, however, be able to cover this cost with the new loan or negotiate for reduced refinancing fees.

Check The Interest Rate In Relation To The Term

When refinancing a loan, many borrowers only check the interest rate. The thing is, although you may be paying a lower interest rate, your lifetime interest cost may increase if you opt for a longer loan term. So, if your goal is to pay off your loan quickly, your new loan should have a lower interest rate and shorter loan term.

Make Sure The Savings Outweigh The Costs

As mentioned earlier, when you refinance your loan, you will likely need to pay a refinancing fee. It may not be worth incurring this cost if you intend to sell your home soon after refinancing the loan. Refinancing your mortgage only makes sense if you plan to stay in the home until you are able to at least recoup the costs.

Check If You Need Mortgage Insurance

If you have less than 20% equity in your home when you refinance, you will likely need to get private mortgage insurance. If you already pay for mortgage insurance, this cost may not make a difference to you. However, if you are tapping to the equity in your home, you may need to get mortgage insurance for the first time. So, make sure to take this added cost into account.