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Should I Refinance?

With mortgage interest rates continuing to hit all-time lows, many homeowners are asking the question, "Should I refinance?" Follow these tips to help answer that question.

  • Specify the reasons for refinancing. Is the purpose of refinancing to lower the interest rate, reduce the monthly payment or change the term of the loan? The refinance mortgage needed will depend on which of these -- or which combination of these -- goals is in play. Based on these goals, set targets for interest rates and monthly payments.
  • Do the math. It makes sense to refinance if you'll recoup the cost of refinancing before you're ready to sell your home. Contact your lender at FSB to get an estimate of the costs involved in refinancing. Divide the amount of the estimated costs by the amount of the monthly savings you anticipate to determine the number of months until you break even. Or use our mortgage refinancing calculator.
  • Know what FSB will need. Before approving your loan application, FSB will need to pull your credit and calculate the loan-to-value ratio on your mortgage. Be aware that these factors could affect your interest rate. FSB will also need to calculate your debt-to-income ratio to determine your ability to repay.
  • Determine changes in property value. A drastic drop in property value can make it difficult to refinance a mortgage unless that mortgage is old enough to have been paid down substantially.
  • Research prepayment penalties on the existing mortgage. Some mortgages have penalties for early repayment, which includes refinancing. This is not necessarily a deal-killer, but it is important to know the amount of any penalty so it can be measured against the potential savings from refinancing. Typically, if you have a fixed-rate loan from an Iowa bank, this won't be an issue. Iowa law prohibits prepayment penalties on this type of loan.

Think it may be the right time for you to refinance? Contact one of our Home Loan Experts today!