When is Refinancing Not a Good Decision?

Home ownership is a major part of “the dream” that you worked hard to achieve. When you bought your home, if you’re like most people, then you probably assumed that the terms and payments of your mortgage would be the same for the duration of the loan.

You should probably refinance when rates are at all time lows like they are now. Before you go ahead dive in, you ought to know what is involved in refinancing your home.

When you obtained your first mortgage and when you refinance are very similar. In short, all you are doing is paying off your current loan with a new loan. So exactly what is involved in refinancing your home? Let’s go ahead and look into it.

When Does It Make Sense to Refinance?

You’ll get more favorable financial terms by refinancing so that’s the most common reason people go through a refinance. When rates are better you can often lower your monthly payment by taking advantage of the favorable rates. Most people consider refinancing if interest rates drop 1% or more below whatever your interest rate is. However, if your credit has improved, refinancing your home for a better rate may be easy without a significant change in rates.

Refinancing your home can also make sense if you are faced with a large one time expense like college or university tuition, a funeral, a large unexpected bill or anything out of the ordinary. Rolling high interest debts into your home can make perfect sense and will typically lower your monthly payments.

The most important reason to refinance your home is that you’ll save money. By refinancing, you will actually immediately improve your credit score if your debt ratio is too high. It will also help you free up additional income by lowering the minimum monthly payment on your most common bills. You will often qualify for lower interest rates on additional things like credit cards and insurance by using a home refinance to improve your credit score and to maintain a low debt to income ratio. Thus getting involved with refinancing your home can be a powerful strategic move toward lowering all of your bills at one time and solidifying your credit.

Shopping for a refinance can take a lot of work and can lower your credit score simply for the credit inquiry. A good mortgage broker will usually find you the best possible lending solution without the hassles. In fact, finding out if you should refinance your home with a good mortgage broker will not cost you anything to review your options and it will save you a lot of time and headaches.

What Is Involved In Refinancing Your Home?

You will need to complete basically the same steps because refinancing is so similar to the obtaining your original mortgage. Fill out an application, obtaining a credit check, verifying your income, verifying the existing mortgage, verifying the property title and getting an appraisal (depending on the loan to value this may just be a drive by appraisal) among other things were all things that you needed when first obtaining a mortgage. You’re going to have roughly the same requirements so this time around be prepared for that.

Before I Get Started, What Should I Look Out For?

You first consideration should be your equity. To refinance, your lender will need some equity in the home to be present. If you have not paid down some of your existing mortgage or if you did not put down 10% or more when qualifying for your original mortgage, refinancing your home may not be possible. However, you may have the required equity if your home has appreciated in value even if you have not paid down anything on your mortgage.

Although, the most important thing you should consider is the expenses going in. Just like with your original mortgage, there are closing costs associated with obtaining a loan. If you save less than the closing costs then refinancing for you wouldn’t make sense. However, for most people that isn’t the case.

There’s only one way to know for sure how much you can lower your monthly bills by. Using the services of a qualified professional mortgage broker who knows the best way to help you achieve your goals will save you a lot of time, money and headaches. It’s free for you to find out what your options with most brokers so if it makes sense for you to save money, you should evaluate your options.