Should You Refinance? 3 Things To Think About
Posted on: 13 December 2016
If you've ever received those refinance advertisements from your local bank or loan company, they always make it look so great on paper. Their ads say things like, "you could save hundreds on your mortgage", or "refinance and pay off your mortgage faster". It all looks great, and may be very tempting, but refinancing may not be for every homeowner. Each homeowner's situation is different; one's credit may be better than the other, or one may have more equity in their home than the other. There are a number of factors to consider before refinancing. See below for a few things you should think about before refinancing your home mortgage.
Interest Rate
If you have a very high interest rate (over 5%), or have a fluctuating rate, you may want to think about refinancing. If your interest rate is already low, it may not be wise to refinance, unless you are planning on taking some money out on the equity on your home. If you're just looking to lower your (high) interest rate, without taking out any extra money on your mortgage, refinancing could save you some money. Of course, your interest rate will depend on your credit rating.
Credit Rating
Your credit rating will affect the type of mortgage interest rate you qualify for, so if you have a lot of outstanding loans, credit cards and medical bills, your credit rating may not be where you think it is. You are eligible to receive one free credit report per year, so contact a credit bureau (Equifax, Experian or Transunion) and request your credit report to look it over before refinancing. This way you can see beforehand what your credit looks like and clean up anything negative that shows up. Things like late or missed payments or over-drafting any accounts are just a few things that can ding your score. Try to keep your bills paid and up to date, and try your best to pay off some of your outstanding debt.
Home Equity
The equity you have in your home will also make a difference when refinancing. If you have just purchased your home and are trying to refinance to a cheaper interest rate without having any equity in your home, you may end up owing even more money after you refinance, especially if you roll fees and other charges into your loan. In this case, you just refinanced for no reason. Try waiting to refinance until you have at least 15% equity in your home. Waiting to refinance until you have 20%, if you pay extra for private mortgage insurance (PMI), could help you not only lower your interest rate, but you may be able to drop the PMI as well.
Be sure to talk with a mortgage professional, like one at Liberty Escrow Inc, before refinancing and look over all of your options.
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