So you are thinking of refinancing? Here are 4 quick and important questions you should ask yourself before doing so.
1) Do I Have Enough Equity In My Home?
To get a conventional loan, ideally you want to have at least 20 percent equity. This means that your house will have to be worth at least $250,000 to get a $200,000 loan.
If you have less equity, you could end up having to pay for private mortgage insurance; however, there are still some government programs available allowing people to refinance existing mortgages with little or no equity. If you are concerned your equity may cause problems call us today and we can review your situation to determine if a refinance is possible.
2) How’s My Credit?
Most lenders will look at your credit score as a part of determining whether or not to make you a loan. With conventional lenders, your rate will depend on your score and the higher it is, the lower your payment will be.
Other lenders, like the FHA and VA programs have an all or nothing rule. If you qualify, your rate won’t be based on your credit, but if your score is too low, you won’t be able to get any loan. Generally, a 740 credit score or better will get you the best rates while a score of 620 is required to qualify.
3) What Do I Want To Accomplish?
Mortgages typically offer a choice as to their term. While the 30-year loan is the most popular, shorter term mortgages save you money since you pay less interest over their lives. They also get you out of debt sooner, at least as regards your house and often come with lower interest rates.
The drawback is that they carry higher payments since you pay off more principal every month. This can make them less affordable for some borrowers and may impact your ability to save for retirement.
4) Do I Currently Have a Good Loan?
If you have an adjustable rate mortgage, you may want to switch to a fixed rate mortgage simply for the additional security it offers you. On the other hand, if you are planning to move relatively soon, your current mortgage could be a better deal whether it’s fixed- or an adjustable-rate.
When trying to decide what to do, compare the cost of refinancing with what it would cost you in additional interest to hold on to your existing loan. While the breakdown is different for every borrower, generally, you’ll need to keep your current house and loan for anywhere from three to six years to break even on the costs of refinancing; however, there are low and no cost options available that change this general rule of thumb.
Deciding what to do with your mortgage can be complicated. Working with a qualified loan professional that can consider every angle with you can help you to make a better decision.