As per the Mortgage Bankers Association, refinancing applications are usually a major portion of all mortgage applications. Partly because of relatively low-interest rate for mortgage have encouraged most homeowners to get their finance restructured.
However, whether mortgage refinances will be right for you will depend more on the individual circumstances than interest rate of the mortgage. Following are 9 key considerations that you must review before you apply for a home refinance.
- Know about your home’s equity
In order to be eligible for refinancing, you must have sufficient equity for your home. Though home value is on the rise, this will not be a major issue, however it is important that you must first know about it before applying.
- Know about your credit score
Most of the lenders nowadays have tightened very much as regards to the approval of loans etc. so much so that people having good credit score too often fail to get their loan approved.
Most of the lenders nowadays prefer a credit score of a minimum 760 and above.
- Know about your debt-to-income ratio
If you have any mortgage loan already then it may be easier to get through. However, nowadays the lenders have raised the bar too high and also become quite strict about debt-to-income ratio.
If you have a stable job, high income and good saving then you can have better chance.
- Cost of refinancing
Usually, the cost of refinancing a home is between 3 to 5% of total loan amount, however borrowers may find many ways of reducing the cost or wrapping them into loan.
In case, you have sufficient equity, then you can roll all the cost into the new loan, by increasing the principal.
- Rates vs. term
In case, you are looking for reducing your monthly payments to maximum possible, then you will go for loan with lowest interest rate and for the longest term.
In case, you prefer to pay lesser interest during the period of loan, then look for Blackhawk bank mortgage rates which are lowest interest rate with shortest term.
- Refinancing points
While comparing various mortgage loan, ensure that you must look at both interest rates and also the points. Points will be equal to 1 percent of the loan amount, that is often paid for bringing down the interest rate.
- Know about your break-even point
This is an important calculation needed to decide about refinancing is the break-even point, which is the point where the cost of refinancing will be covered by the monthly savings.
If you have reached that point, then your monthly savings will be totally yours.
- Private mortgage insurance
Those homeowners who have usually less than 20 percent equity for their home when they refinance will be needed to pay certain amount as private mortgage insurance which is also known as PMI.
- Know your taxes
If you refinance for paying lesser interest, then your tax deduction can be lower, though few people consider that as the reason for avoiding refinancing.
However, it may also be possible that interest deduction can be higher for initial few years of your loan when the interest portion of your monthly payment will be greater than the principal.