Things To Consider Before Refinancing Your Home Loan
With the current mortgage rates in historic low, many homeowners are considering refinancing their home. Refinancing for the right reasons at the right time can be hugely beneficial for homeowners. Homeowners can take advantage of lower rates to decrease their monthly payment. This extra money could go toward the principal, paying other debts or building up savings. Here are things to consider as you plan for a positive refinance experience.
Refinance = Getting a New Mortgage
Refinancing does not mean changing some of the terms on your current mortgage and keeping it. When you refinance, you are getting a brand new mortgage that pays off your current mortgage. So be prepared for a similar process as you went through when getting your original mortgage. Your credit score and debt-to-income ratio are still very important, and you’ll complete many of the same forms and pay a number of the same costs again.
Know Your Home’s Equity
Knowing your current house value and equity position in your home is important. One reason people choose to refinance is to get rid of mortgage insurance. You can refinance into a loan without mortgage insurance once you have 20% equity in your home.
Know Your Credit Score
Just like when you got your original mortgage, the higher the better when it comes to refinancing. The best rates and terms are available to those with a credit score of 740 or higher.
Know Your Debt-to-Income Ratio
Like with credit score, debt-to-income ratio is just as important when refinancing your home. You should look to spend no more than 40% – 45% of your monthly gross income on housing costs. Keep in mind that includes more than just your mortgage: utilities, repairs, upkeep, HOA fees, taxes and more are all considered in that amount.
Consider the Costs of Refinancing
Since you are getting a new mortgage, you will have to pay the closing cost. Refinancing usually costs anywhere between 2% and 6% of the total loan amount. Keep these costs in mind as you consider whether refinancing is right for you. Even if the length and terms of the new loan could save you money in the long term, the closing costs could make it not worth your while if you plan to sell before reaching your break-even point.
Swee Ng, Realtor and Phoenix East Valley resident specializing in win-win real estate transaction through great communication and fighting for his clients’ best interest. After all, this is more than real estates, this is about your life and your dreams.
If you are looking to buy or sell your home in Phoenix AZ and surrounding area, we hope you will consider us. Contact us today for complimentary consultation.
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