Is Refinancing Something to Think About?

There are a lot of reasons why homeowners think of refinancing their homes by acquiring a loan. Most of their common reason to consider refinancing is because they want to pay off their original loan and obtain new financing that offers a reasonable interest rate. For this instance, the old mortgage disappears and the new one replaces it. Sounds reasonable right? But this requires a lot of attention when it comes to things you should know to determine if refinancing is the best option for you!

 

Your Credit Standing Says It All

If you have perfect credit history and you wanted to convert existing variable loan rate to a fixed or flat rate with low interest, refinancing will do. Refinancing is not possible if your credit score is less than perfect, poor or if you have a humongous amount of debts.

Things to Consider

Refinancing a mortgage is not an easy task and many times something to be consulted with experts. Try to reflect on the following information as a guide to deal with your home.

– Your Present Finances – Make sure that you fully understand your current or present financial status, and at the same time your financial goal. Your objectives should be straightforward and firm and which loan best suits you.

– Home Equity – Know how much equity you have in your home. If the equity in your home is at least 10-15%, you will have an easier time obtaining refinancing.

– Debt-To-Income Ratio – Although you have a mortgage loan, don’t think that obtaining another one will be easy. Nowadays lenders are highly cautious and they usually require tougher documents with debt-to-income ratios. The lenders target is to keep the monthly mortgage payments between 28% and 31% of the gross monthly income. Preferably, total borrower debt should be at maximum of 36% or less. If the percentage of debt is above 31%, you must consider paying it off before you can apply for refinancing. Your chance of being qualified is when your debts decrease.

– Shop Refinancing Costs – Expect your refinance cost will juggle between 3-5% of the loan. Let say, you have sufficient equity in your house; you can reduce or eradicate the costs up front by integrating them into the new loan. This method will definitely expand the principal. A no-cost refinance plan is not without cost. Your interest rate is expected to be higher to cover up the closing costs of the loan. If you have perfect credit, check on some lenders maybe some of them are willing to reduce or pay some of the refinancing fees.

– If you have less than 20% equity in your home, you will be asked to pay private mortgage insurance (PMI) when you refinance. Homeowners who have seen their home’s value deteriorate since they acquired it will know that they need to pay PMI, and possibly at the smaller payment scheme.

Reevaluate and check your credit first, and then properly decide on whether you’re going to continue refinancing your home.

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