There are also specific refinance rules that you should follow. If you’re having a difficult time paying your mortgage, refinancing may help by lowering your monthly payment. A refinance could save you money, lower your monthly payments, and free up room in your budget—if you follow the rules. As with any mortgage, before you sign the papers, you should be sure that the interest rate and terms of the loan are the same as what you were originally quoted. If the rates change, be sure that you are still getting a good deal on the mortgage. If possible, refinance to a 10- or 15-year mortgage. However, a shorter loan length will increase the amount that you would pay per month, compared to a 30-year loan. If you use the money to pay off unsecured credit cards, you’ll put your home at risk if you’re no longer able to make mortgage payments. You may also end up underwater on your mortgage, because of the changing value in home prices. If you withdraw the equity and own less than 20% of your home, you may pay private mortgage insurance (PMI) again. Leaving equity in your home protects your abode and your financial future. Locking in a lower rate will save you more money in the long run. Find out how long you have before your home goes into foreclosure. Also, find out if there are prepayment penalties. Some lenders will not allow you to pay off the loan early for a set number of years, or they may not credit extra payments to the principal amount of the loan. Consider these details before you refinance, preferably with more than one offer in hand, and ensure the terms are favorable to you.
