It’s a big decision to make, but refinancing your home can have both pros and cons. Weighing up the options and deciding if it’s the right move is the best approach. Refinancing can sometimes receive a bad reputation for needing to be something a homeowner does whilst in financial difficulty, it can be the opposite for some people looking for a better mortgage is the reason and having a desire to pay off the sum quicker. Here is some key information to get you started on the decision.
A vital part of refinancing is the equity in your home. The drop in home values across America has left many homeowners owing more to their mortgage than the homes current market value. Using conventional lenders might not be possible for some if they have low or no home equity. The best way to find out is to have the conversation with your current lender, explain your situation and individual needs and see what they can offer. Normally homeowners with 10%-15% equity tend to have an easier time qualifying for a new loan.
In recent years, most lenders have made their loan approvals a stricter process, some homeowners may be surprised to see that they don’t qualify for the lowest interest rates even with a good credit score. Borrowers with lower credit scores may still qualify for a new loan, but with higher interest rates or fees.
The Cost of Refinancing
Averagely in the US, to refinance a home it costs between 3%-5% of the original loan amount. Borrower tends to be able to use several ways to reduce the costs or have them put into the new loan deal, depending on your current equity. There are some lenders that will promote special offers which include “no-cost” refinance which usually entails slightly higher interest rates to cover the loss. It’s worth discussing the best options with professionals. If you’re wanting to pass on equity to someone else, for example, speaking to property management Manchester experts or other professionals in the field will give you a much better understanding of what you’re entitled to and the best approach.
The Rates and Terms
As the borrower, you might find yourself focusing on the interest rates, whilst this is important it’s also essential you determine your goals and which mortgage product meets your needs. If your plan is to reduce your monthly payments as much as possible you’ll be needing the lowest interest rates over the longest term possible. For those wanting to pay off their loan faster, finding the shortest-term mortgage that they can afford is best suited.
Calculating the breakeven point of refinancing is an important feature in deciding whether you’re taking the correct route. The breakeven point is the time when the costs of refinancing have been covered by your saving/ what you’ve spent. If for example it would take you 3 years to breakeven but didn’t intend on staying in the home for that long, it negates the reason for refinancing.
Private mortgage insurance is a requirement for borrowers with less than 20% home equity. If you already pay PMI than it won’t make much of a difference to your situation. For those who find that their home has decreased in value, they may find themselves needing to pay PMI if they’ve opted to refinance. Lenders can calculate what you will need to pay quickly and whether is worthwhile going ahead with.
Few people find it to be a reason to avoid refinancing, but if a homeowner relies on a mortgage interest deduction to reduce their federal income tax, paying less on the mortgage means receiving a lower benefit. There are many different taxes that can be impacted by refinancing so be sure to consider what deductions you currently receive and if they’ll change.
It’s a complex financial transaction to be involved in, but it is necessary for some people. It’s worth taking the time to do research or discuss options with professional so you make the right personnel decisions. Most reputable lenders can provide quick reassuring answers to most questions.
Bio: Richard Meadow is a writer that works on topics in relation to law, property and freelancing. He is always interested in new subjects and articles to read about and enjoys writing about commercial property management.