Refinancing your home can result in big savings if done under the correct conditions. Every home loan and borrower varies, so an opportune situation for one person may not be for others. Before making a decision to refinance, take a look at these 5 home loan refinance considerations.
5 Home Loan Refinance Considerations
1. Your Personal Situation
Your specific situation situation should play an important role in your decision to refinance and the type of loan you should choose. When do you expect to sell the home? Will you possibly refinance again in the future? Do you intend to convert the home into an investment property? Does your current mortgage include a pre-payment penalty? Do you have funds available to cover closing costs? These are all important things to think about and to remember when calculating the benefits of refinancing.
2. Interest Rates
Interest rates are determined by market conditions, credit history, loan value, and loan term. First, think about whether rates are expected to rise or fall based on what is taking place in the economy and with the federal government. You cannot predict the future, but there may be specific events that may directly affect rates. Second, find out what rate you qualify for according to your credit rating and loan amount. The one you can get may not necessarily be the lowest rate. Better credit history usually qualify you for lower interest rates. Lastly, compare the current rate to your existing one. The savings (per month and during the length of the loan) should be weighed against the expenses associated with refinancing. Generally, it is beneficial if the new rate is at least one percent lower than the existing rate.
3. Expenses for Refinancing
It is helpful to assess both the overall cost of refinancing and the money needed at closing. Every mortgage has fees associated with it. Loans advertised as having no closing costs typically mean that the costs are either rolled into the loan amount or are reflected in a higher interest rate. Some items, such as pre-paid expenses, are not counted as closing costs but will result in out-of-pocket expenses.
Normally, a refinance will require some cash due at closing. Money that you receive from your old escrow account can offset some of this cost. Additionally, you will have one month without a loan payment. For example, if you refinance during the month of June, you will have already made your June mortgage payment and the first installment due on the new mortgage may not be payable until August 1st. An exception to needing cash at closing is a refinance to cash out equity. In that situation, closing fees would be deducted from the equity funds.
4. Real Estate Market Value
You may have heard the term loan-to-value. This ratio reflects the loan amount versus its current market value. The value of your home fluctuates with the real estate market. Although a real estate broker can provide a rough estimate of market value, an appraisal is required to determine the specific figure. Maximum loan-to-value ratios are generally required (the exact percentage depends on the loan program). If the value of your home is less than the loan principal, you will have difficulty refinancing without funds to pay down the loan principal. Some financing options, such as an FHA streamline refinance, do not require an appraisal and thus make this less of an issue.
5. Mortgage Terms
Every financing program has certain criteria and restrictions. Below is a list of common factors:
- Loan-to-value Ratio
- Credit Rating
- Property Type
- Dollar Amount of Loan
- Amount Saved Monthly as a Result of the Refinance
- Existence of Non-occupant Owners
- Mortgage Insurance Amount and Duration
Southern NH Refinancing Factors – The Next Step
As you see from the 5 home loan refinance considerations above, deciding to refinance requires more than comparing interest rates. It requires consideration of personal factors along with weighing of available options. An experienced mortgage consultant will help you analyze all of this and assist you with making an informed decision. For more Southern NH refinancing factors, contact Sharyn Kelley at Suburban Realty Inc..