By Renee Envy
Refinancing Your Home
There are a few reasons that you want to refinance your home. You might see that interest rates are much lower than what you are paying. You also might want to cash in on some of the equity that you have in your home. Either way, this could be a good idea for you.
If you are looking to refinance your home, you will need to find a reputable lender to help you do so. You can find lenders at banks, credit unions, and online, but you must be careful with online lenders. You need to make sure that you choose a lender that has a recognizable name. You can also read online reviews and check the Better Business Bureau to see what others are saying about them.
There are some risks that you will take when you decide to do this. If you are refinansiere boliglån, or refinancing your mortgage, you need to make sure that the interest rates are lower than your first mortgage. You don’t want to end up spending more money because you made this choice. This is especially significant if you are refinancing to cash out on equity in your home.
This article will help answer some questions that you might have about refinancing. It will help you to learn more about this action. You can also do more research to find the information that you need.
Information You Should Know
1. What is the Reason for Refinancing? As was mentioned above, there are two main reasons for refinancing. The first is to get a lower interest rate than what you are paying. The second is to cash out on equity that has built up in your home. Both are good reasons to do this, but you need to be careful that you are getting a better deal to refinance.
Whichever reason you have, you need to check into all the fees that are associated with doing this. Of course, you need to check the interest rates, but you also need to check origination fees, closing costs, and other fees that might be attached to the loan. You want the new loan to be worth all the fees that you will be charged.
2. Mortgage Rates – It wouldn’t make any sense to refinance if you are not getting lower mortgage rates. You need to check the current rates before you apply for anything. If the rates aren’t lower, you might want to wait for a little while to see if they go down. You don’t want to make any rash decisions.
You also need to remember that even though the rates might be lower today, they might not stay that way. They may rise by quite a bit in the next week or so. If the rates are lower, you might want to jump at the chance to lower your payments. You still don’t want to make rash decisions but make sensible ones.
3. Types of Rates – When you are checking rates, you want to make sure that you are comparing apples to apples. There are two different types of rates – fixed and variable rates. You want to compare fixed rates with fixed rates and not variable rates. Variable rates are often less than fixed rates, but they will change during the lifetime of your mortgage.
If you want to change your fixed rates to variable rates, then you do need to check out those rates. This is not common because it can cause you to pay more for your mortgage in the long run. It is usually done because the initial rate is lower than the fixed rate. You just need to remember that they won’t necessarily stay lower.
4. Credit Score – Your credit score is important in refinancing your home loan. You can find your credit score and the credit history by going to the three major credit reporting bureaus. You can get at least one free report each year, maybe more. These reports are easy to find, you just need to do a quick online search.
Your ability to get a refinance loan and the interest rates associated with it depends on your credit score. If you have a high score – above 750 – you are more likely to get a loan with lower interest rates. The lower your score, the lower your chances of getting a loan. If you do get it, the interest rates could be much higher.
5. Debt-to-Income Ratio – Your debt-to-income ratio is the amount of money you make each month compared to the amount of money you spend on your debts. Ideally, this number should be less than thirty-five percent. If it is higher than that, it might be more difficult to get the advance. There are ways that you can lower this – especially by paying off some of your debts.
If you pay these debts down, you will have a better chance of getting the refinancing. You could also find a better paying job or ask for a raise. Sometimes, those last options aren’t as easy as they seem.
6. Equity in Your Home – The equity in your home is the amount of money that you have paid on your home compared to the value of your home. The more that your home is worth, the better chance you have at having good equity in your home. This will help you if you are planning to cash out on your equity.
Generally, the lender will allow you to borrow up to eighty percent of your home value. This means that if your home is worth three hundred thousand dollars, you will be allowed to borrow up to two-hundred-forty thousand dollars. If you have a loan for two-hundred thousand dollars already, you will only be allowed to borrow up to forty thousand dollars. If your loan is above two-hundred-forty thousand dollars, you likely won’t be able to get the loan.
7. Closing Costs – You will be required to pay closing costs on your refinance loan, just as you did when you got your original mortgage. These costs can be up to six percent of the loan amount. This can run into thousands of dollars for you. You could potentially roll these costs back into your loan but then you will be paying interest on it until you have paid off your loan.
It is better to pay the closing costs with cash and not roll it into your loan. This will save you money initially and throughout the life of your loan. It is also important to note that the closing costs must keep your loan under eighty percent, or you can’t roll it over.
8. Break-Even Point – If you are refinancing to save yourself some money, you will need to divide the savings that you will have monthly by the amount of closing costs to see how long it will take you to break even on those upfront costs. If you plan on moving before that time, it won’t be worth it for you to refinance. You need to make the decision to see if it is worth it to you.
If your refinancing can save you one hundred dollars per month and your closing costs were five thousand dollars, it would take you fifty months before you break even. If you are staying in your home longer than that, the refinancing makes sense. Otherwise, you should just keep your existing mortgage.
9. Mortgage Insurance – If you made a down payment of less than twenty percent of the loan, you may have to pay private mortgage insurance, or PMI. If you have a government backed loan, you may be paying for different types of PMI. There is at least one type of PMI that you must pay if your down payment was less than twenty percent.
If your home value has increased significantly in the time since you had your original mortgage, you might not need to pay PMI. This could also happen if you pay more than twenty percent down. This could save you money on your refinanced loan.
10. New Mortgage Term – When you refinance, you also get to change the term of the term of your loan. Most terms are ten, fifteen, or thirty years. The longest term will have the lowest payments, of course. The shortest term will have your mortgage paid off sooner, but you will have higher monthly payments. You will, however, save on interest.
You can choose which term that you want. You must decide which would be best for you. Lower monthly payments could mean more to you than saving long term on interest.
Conclusion
There are a lot of questions that must be answered before you choose to refinance your home. You need to decide if it will be worth your time and effort. You also need to decide if you really need the money in the first place.
If you decide that you need the money, you need to decide if you will choose a fixed rate or a variable rate. You also need to decide what term you will want. These are just some of the decisions that you will need to make.