5. Should You Go Shorter?
Another option, if you can afford higher payments, is to refinance for fewer years. Turning a 20 year mortgage into a 15 year one will result in higher monthly payments. However, the overall cost of your entire mortgage will go down, since you’ll be paying less interest. You’ll also be mortgage free five years sooner. If you can swing the higher payments, consider investing in your future by refinancing for a shorter duration.
Like we said at the start of this article, it all depends on your specific financial circumstances — and how much you can afford to pay every month. However, refinancing with a shorter mortgage term will save you more money in the long run. However, you may find your monthly budget stretched thin by those higher payments. (Yes, even with a lower interest rate.)
4. Your Own Credit
We get it. All this talk about record-breaking low interest rates can get you excited. It might seem like everyone is taking advantage and saving themselves thousands of dollars. However, one of the single most important things when it comes to mortgage applications is, well, you. More specifically, your creditworthiness.
If you (and your partner, if co-applying) have excellent credit and solid job security, then you’re laughing. You shouldn’t encounter many problems. However, if your credit is less-than-stellar or your job security is a bit shaky — which unfortunately describes a lot of people right now — your options are suddenly less exciting.
You may find yourself unable to qualify for those rock bottom rates. If that’s the case, refinancing might not make sense for you at all, once you factor in the other costs associated. This is a good time to review your credit scores, fix any mistakes in your credit history, or take steps to improve your credit before you attempt to refinance a mortgage.