How a mortgage rate checkup can help improve your loan terms

If interest rates have lowered considerably since you opened your mortgage loan, it might be time to reevaluate your options to help you determine if you could be saving money.

A mortgage rate check-up is the process of researching what types of mortgage loans exist in the market today. It helps borrowers understand how new mortgage loans might stack up against the one they currently hold. Even if interest rates haven't changed substantially from when you bought your home, it might make sense to take this step if your financial situation or goals have changed considerably. A check-up can help you ensure your mortgage terms are the best fit for your current needs.

Getting started

You can start your research process online. Many third-party websites publish the rates of select mortgage lenders. Some banks and mortgage lenders also publish their own loan terms and rates online.

However, the exact rate and type of mortgage loan you may qualify for can vary significantly based on factors like the amount of time you've lived in your home and how much equity you have in it, along with the borrower's income, debts and credit history. For that reason, it's a good idea to go straight to a credible source, like your local banker or a trusted mortgage advisor at your local bank, for personalized and expert guidance.

What to look for

You may find that a mortgage rate check-up reveals opportunities to accomplish any number of financial objectives, including:

• Moving from an adjustable-rate mortgage into a fixed-rate loan so monthly payments won't change unexpectedly
• A reduced mortgage loan term
• A lower interest rate because a borrower has improved their credit score since obtaining the last mortgage
• The ability to stop paying private mortgage insurance because home equity has increased
• The means to fund upcoming big-ticket costs, like college expenses
• You've seen rates move lower since you opened your mortgage more than 6 months ago
• Your financial situation changed due to a job change or loss of a partner and now you want to increase the loan duration to make payments more affordable
• You may be able to reduce your current loan rate by 1% or more

Potential benefits

There are a number of reasons to seek out a mortgage rate check-up. For example, you might be able to lower your monthly loan payment by extending the loan term. Or you could pay less money in interest over the life of the loan by finding a lower-interest rate loan with the same term.

You may be able to reduce the loan term—for example, moving from a 30-year loan into a 15-year loan—so you pay less interest overall and own the home outright sooner. Additionally, you might consolidate other higher-interest debts related to credit cards or other loans into a lower-interest loan following a mortgage rate check-up.

Factors to keep in mind

Different lenders have a number of different mortgage products, and the terms can vary significantly. Because those factors can influence how much you ultimately pay to move to a new loan and what it costs over its lifetime, you'll want to keep fees, points and loan terms in mind before making your decision.

You may also think about how long you plan to live in the house after you refinance—the longer that is, the more time you have to realize any potential savings.

Finding the right opportunity

Interest rates change frequently, and major world events like the COVID-19 pandemic can bring additional volatility to the market. While refinancing into a new loan doesn't need to be complicated, it can be time-sensitive and may require a lot of financial paperwork. You might also need to respond to requests for more information quickly.

If you find a potential loan opportunity that interests you, talk to a financial advisor about your options. Having an objective voice to help you evaluate new loan terms will help ensure you end up with the best rates for your needs and situation.