Six Things Every Homeowner
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With interest rates fluctuating every day, you might find yourself in a position to lower the rate on your mortgage. Whether your credit has improved or the rates have, you'd be shocked to see how much you can lower your house payment with a refinance.
You'll Need Equity to Refinance
This can be surprisingly hard to do in a housing market that's still shaky from the big crash. Banks don't want to offer you anything if there's the chance that they're offering you money only to wind up "upside down" on your loan. However, if your house is worth more than the loan, they're in a good position financially and are more likely to grant the refinance.
You'll Need the Financing Costs
Much like those costly closing costs, you'll need to have another 3% to 5% for a refinance loan. If there's equity in the home, you can roll the costs into the loan, but if there's no equity, you'll need to have that amount in cash. Some lenders offer a "no fee" refinance, but that means you have a higher interest rate.
Realize When It's Worth It
If it's going to cost you $3,000 to refinance, how much will you be saving each month to recoup your costs? If you're only saving a couple hundred dollars every month, it will take a couple years to regain those costs. If you're planning on staying put for a long time, this won't matter, but if you have plans to sell and move within that time frame, it's probably not worth it to refinance.
Remember the PMI? It's Back
You might remember private mortgage insurance from when you purchased your home. If you thought you'd never have to see it again, you were wrong. When you have less than 20% equity in your home, you'll be required to pay PMI every month. These costs can be significant, and might make the refinance a waste of time.
Why Are Your Refinancing?
There are two reasons people refinance: to lower their interest rate, thus lowering their monthly payments, or to pay less interest over the life of the loan. Paying the fees are probably worth it if you're only interested in lowering how much interest you're paying, but you should consult with a mortgage broker about whether or not refinancing to lower the interest is worth it or not.
Having an ARM Might Make Things More Complicated
If you got swindled into an ARM, refinancing might scare you because it can drastically raise your mortgage. However, it makes more sense to raise your payment and make it a steady amount rather than having a mystery increase at any time.
Don't let the idea of a lower interest rate sway you into your decision. There are a lot of factors involved in refinancing, and these factors will tell you whether or not you're making a good decision in refinancing.
Informational credit to Mortgage Centre.
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