Refinancing a home mortgage can result in big savings when completed under the right circumstances. Every mortgage and homeowner is different, so the best time to refinance for one homeowner may not be for others. Prior to making a decision to refinance, think about these 5 considerations in refinancing a property.
5 Considerations In Refinancing A Property
1. Your Personal Situation
Your particular situation will determine whether to refinance and the programs that will meet your needs. How long do you intend to own the home? Will you possibly refinance again? Do you intend to convert it into an investment property? Does your current loan include a pre-payment penalty? Do you have money available for closing costs? These are all important questions to ask yourself and to keep in mind when calculating the benefits of refinancing.
2. Interest Rates
Interest rates are impacted by market conditions, credit score, loan amount, and loan length. First, consider whether rates are expected to rise or fall given what is going on in the economy and with the federal government. You cannot predict the future, but there may be specific circumstances that will directly impact rates. Second, find out what interest rate you qualify for with your credit history and loan amount. The rate you receive may not necessarily be the lowest rate. Higher credit scores usually qualify you for better interest rates. Lastly, compare the new rate to your existing one. The savings (each month and during the duration of the loan) should be compared against the cost of refinancing. Generally, it is worthwhile if the new rate is one percent or more lower than the old rate.
3. Costs of Refinancing
It is helpful to understand both the overall cost of refinancing and the amount due at closing. Every mortgage has fees associated with it. Loans promoted as having no closing costs usually mean that the costs are either rolled into the loan amount or are reflected in a higher interest rate. Some costs, such as pre-paids, are not counted as closing costs but require out-of-pocket expenses.
In most cases, a refinance will require some money due at closing. Funds that you receive from your old escrow account may offset some of this. Additionally, you will have one month where no loan payment is required. For example, if you refinance during the month of June, you will have already made your June loan payment and the first payment on the new loan will not be required until August 1st. One exception to the cash requirement at closing is a cash out refinance. In that case, the amount due are deducted from the amount given to you.
4. Home Values
You have likely heard the term loan-to-value. This ratio describes the loan amount versus its current market value. The value of your property changes with the real estate market. Although a real estate agent may prepare a general estimate of value, an appraisal is required at the time you refinance to determine the specific figure. Minimum loan-to-value percentages are generally required (the exact ratio depends on the mortgage program). If the market value of your home is less than the mortgage principal, you may have difficulty refinancing unless you have money to reduce the loan principal. Some mortgage programs, such as an FHA streamline refinance, may waive the appraisal requirement and therefore make this less of an issue.
5. Loan Type
Every mortgage program has specific qualifications and restrictions. The following is a list of common factors:
- Loan-to-value Ratio
- Credit Score
- Type of Property
- Dollar Amount of Loan
- Percentage Reduction in Monthly Payment
- Need for Non-occupant Owners
- Mortgage Insurance Amount and Payment Period
Melrose MA Refinance Factors – The Next Step
As you can see from the 5 considerations in refinancing a property above, deciding to refinance includes more than comparing interest rates. It should include consideration of personal factors and weighing of all options. A knowledgeable loan officer can assist you with all of this and help you arrive at an informed decision. For additional Melrose MA refinance factors, contact Martino Law Group.