Perhaps when you signed all the dotted lines on the documents for the home you were buying several years ago, you had decided to go with a longer term with your mortgage lender because you liked the house and as far as you were concerned, you weren't too likely or didn't want to move at all. Your concern at the time was to keep your monthly payments low, and you figured if your plans for paying off your home changed, you could refinance the mortgage later. Today, maybe you've run into better financial times be it a raise at work, money you inherited from a deceased relative, or sweepstake winnings that maybe you'd like to apply towards monthly payments with the bank or mortgage company. But should you focus on paying it off quicker or refinancing? Or should you direct it elsewhere?
It’s important to tell your Burnsville home mortgage lender if you're currently carrying credit card, student loan or auto loan debt. Those are debts you should pay off first. Even if your current debt-to-income ratio is low or you aren't carrying much debt, extra income you bring in still could be better directed towards an emergency savings fund or investing in a college savings plan or retirement. That doesn't mean you can't still apply some of your income to shortening your mortgage period, but it's usually not necessary to focus on that first.
Whether you're refinancing from a long-term to a short-term mortgage, or deciding to pay off your current mortgage well ahead of time, most mortgage lending institutions will charge fees in either case. Different mortgage terms have different policies on whether they charge a prepayment penalty, how they will charge it, and how you could allocate extra payment amounts to reducing the mortgage principal. Likewise, if you're going to refinance your mortgage, you'll have upfront costs to do that as well. Closing costs, attorney fees and everything else could be up to 2 or 3℅ of the current balance you owe on your mortgage. If those costs would be less than a prepayment penalty, refinancing might be a good idea. Otherwise, you may want to stick with your current mortgage and try to reorganize your payments.
If you’re going to refinance from a long-term mortgage to a short-term one, you need to make sure you're not going to be paying more in interest over the life of your refinanced mortgage or you’ll defeat the purpose of refinancing. Your monthly payments will already increase, but you want to make sure that by the end of the term you will not be paying more in interest than you would be with your current mortgage. Making sure you get the best interest rate deal involves checking with more than one mortgage lender, and as you shop you'll have a ballpark figure to work with. You need to keep in mind your immediate focus shouldn't just be on affording your new monthly payments, but on the bigger picture if what the final cost of paying off your home will be, and whether you'll still be able to meet your other financial goals.
Need help to prequalify for a mortgage loan? We're here to help! Ask about Burnsville mortgage loans.