Several months ago, when interest rates dropped, there was a rash of home refinancing. This has slowed down, but there are still some attractive deals out there. Should you refinance?
When is a good time to refinance? Each home owner will have a different situation. Consider some of the big factors before you make a decision. Consider some simple things so you can decide if you should refinance your mortgage.
It seems to be a lot harder to qualify for a mortgage today than it was a few years ago. You may want to look online about today’s requirements. A good broker can also help you. Your first move is to see if your own personal credit situation will qualify you for a home mortgage.
Of course, your house also has to qualify. Of course, your house has to be worth enough so you can find a mortgage company that wants cover it. In addition, if you want to avoid Private Mortgage Insurance, most lenders will require 20% equity. When you get a loan for a new house, that usually means a down payment. However, you may avoid that when you refinance if your home appraises for 20% more than the amount of the loan you want to get.
After you have figured out what sort of loan you can qualify for, it is time to figure out if particular loans will be good deals for you.
Many people suggest figuring out the break even point of your new mortgage. Each loan, even a refinance, comes with closing costs and other expenses. They can be thousands of dollars. You have to calculate the point when your monthly savings is larger than the amount you spent to get the new loan. You may want to get some help from an online refinance break even calculator. There are many websites with online financial calculators that can help you.
For example, let us say you will save $200 a month if you refinance. However, you will have to pay $2,000 in closing costs. That means it will take you 10 months to break even on this deal. If you plan to stay in your home for longer than 10 months, a refiance should be strongly considered. You may not come out ahead, over time, if you plan to sell your house soon.
There are other reasons people refinance than just to save money in the long run. Some people have a large need for extra cash right now, and this outweighs long term savings. If you need to give your child college tuition or pay off a big balance on a credit card, refinancing may help. You may have better uses for your money now, like paying off other debt, that make sense.
Should you refinance? Do your homework so you can evaluate your own unique situation. Then you can make an informed decision.