When You May Need To Consider Mortgage Refinance
There are several reasons why you may want to refinance a mortgage. One of the most obvious reasons is to get a lower mortgage rate. Thankfully, some lenders today offer a reasonable rate, in some cases well below the standard rates. However, this is not the only motive for homeowners. Lower rates haven’t had a great impact on refinancing. Many people are not yet in a position to refinance because they don’t have much equity on their homes, especially with real estate values taking a drop.
With the US government setting favorable conditions for debtors with lower interest rates, this is the perfect time for refinancing. For those in two minds whether to refinance or not, there are few factors they need to consider. To begin with, if the interest rate can be lowered by a minimum of one percentage point, then you may consider refinancing. If you plan to move home within a year, it may not be advisable to opt for refinancing. Closing costs are high and could hurt your finances considerably if you choose to move so soon.
Check your current loan terms for any pre-payment penalties. Most lenders impose penalties on the first few years of a loan. During this period, it may not be worth opting to refinance your mortgage, if you are bound by such terms.
It is also important to determine how much equity you have on your home. In most areas, the value of homes has fallen dramatically even as much as 20% since 2007. Without at least 20% equity on your home, you will need to purchase private mortgage insurance which may not make refinancing worthwhile.
As a borrower, you will need to consider your credit score. Some lenders have set limits so you will need to check if qualify for any low rates they offer. The key is to keep your credit score as clean as possible in order to be offered better rates than what you currently have. If your income has fallen then you may seek refinancing options. However, if your income is higher than when you obtained your first mortgage you may be able to pay off the mortgage with a short term loan rather than opt for refinancing.
Under current market conditions it may be wise to opt for refinancing if you have an adjustable-rate mortgage (ARM). Opting for a fixed-rate loan could turn out to be a viable option. It is important to know where you stand with your current mortgage before you decide to refinance. The objective is not to end up paying a hefty price which could be avoided in the first instance.
Refinancing a mortgage is as good as taking out a new mortgage. There will be several costs involved including the application fee, lawyer’s fees, examiner’s fee to verify ownership of your home, and any other relevant costs. Therefore, it is prudent to consider all these factors prior to applying for a refinance mortgage loan. It would be wise to discuss the issue with your current lender who may be able to help reduce your monthly payments or reduce your interest rate.