It’s difficult to decide if you should get a home refinance or not. You may not find too many rock solid rules of thumb for home refinancing that you can depend on. The one principle that is most often blindly followed by people is that you should go in for a refinance when interest rates are down by 1% or more. Sometimes, even though interest rates are low, you’re not sure whether there will be a further downward trend. So what should you do – refinance right away or wait?
The fact is that though a drop of 1% is a good indicator that refinance is worth considering, you still need to run the numbers and go ahead with some assumptions. To get the right numbers, just visit a good home valuation website like Neighborhood IQ.
When considering a refinance, there are certain things you need to look at:
1. Don’t get taken in by comparisons. If you’ve been living in your home for the last 5 years, it would be incorrect to compare your present mortgage to a new 20 year one. You would be going in for a swap of 15 years of balance payments into a new 20 year payment plan. It is natural that those payments appear smaller. If you can help it, it is better not to extend the loan period.
2. Are you eligible? Your circumstances might have changed since you went in for your original mortgage. There are some important factors that you need to consider. Has your credit rating improved or deteriorated since you acquired your home? Have your earnings changed? What is the position of your other debts? Whether you are eligible for a refinance will depend on all these factors and more.
3. Do you have the required equity in your home? Keeping changing prices in mind, what is the true status of the equity you possess? If you have equity less than 20%, you may not be able to get refinancing at the best rates. You can research a bit yourself before going in for a paid appraisal on the refinance. Again, you can try Neighborhood IQ to generate a free online home value report.
4. How long do you plan to stay? If this period falls short of 5 years, you need to have substantial savings on the refinance to make incurring of closing costs worthwhile. You can use closing cost calculators to give you fair estimates of all costs involved.
5. Try not to lengthen the tenure. Although lenders advertise tempting rates on 15 and 30 year mortgages, there are chances they’ll issue an odd-year mortgage, such as 27 years if you’ve been with your present mortgage for 3 years. Try not to extend the number of years you’ll be in debt.
If your bank doesn’t agree to this and you still want to refinance, you could take the lower payment and continue with your current mortgage amount. This will help you liquidate your debt, and you’ll be paying some extra money each month which goes directly towards the principal amount. This will help you eliminate your mortgage sooner.
The Home Loan Advisor can analyze your property, current market conditions, local market comps, and other variables in our proprietary algorithm, but we match you with potential lenders who have products that may help you and provide you with a sense of stability. A little research can mean an easy and pleasant refinancing experience while maximizing your money. To assist you in the refinancing process, you can also get a free home valuation report from Neighborhood IQ and find out what your home is really worth.