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What To Know Before you Refinance

According to Consumer Reports, “58% of homeowners who have mortgages- pay interest rates that are higher than today’s bargain rates.” Refinancing is done to allow a borrower to obtain a different, and hopefully even better interest term and rate by replacing the old mortgage with a new one. The process of refinancing is done to help reduce monthly payments, lower interest rates, take cash out of your home for large purchases, or change mortgage companies.

What should I think about before refinancing?

Before refinancing it’s important to consider exactly how you will repay the loan. Can you afford a new loan? Looking at the timeline of how much longer you have left on a loan can help determine the urgency of refinancing. If it adds time and interest to your loan, it may not be the best option especially if your debt to income ratio is not beneficial.

It’s also important to think about how much you’ll gain by refinancing? Could you obtain more money for another purchase? Or maybe even reduce your credit card debt? One of the biggest hurdles for refinancing is equity- which is the value of your home without loans. If for some reason your down payment left you with more mortgage debt than before, it’s important to know. One last thing to consider before refinancing is the breakeven point which is the point in calculation that the costs of refinancing have been covered by your monthly savings. Depending on what you plan to do with your home- staying or moving, a refinance may not make sense.

Make sure you ask yourself these questions before seeing if you qualify. A good candidate for refinancing would have a regular income with lower percentages of equity in their homes. These are all details to consider before refinancing your home. Your Mortgage Advisor can help you determine whether refinancing is the right move for you, whether it’s now or in the future.

 

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