List of Some Important Factors to Be Considered Before Refinancing Home
If you are considering applying for a low rate mortgage refinance loan, it could be advisable for you to take the following factors into consideration.
- Current Interest Rate – Home refinancing requires you to bear closing costs or extra fees and to recover these will need some time. So make sure that the new interest rate is lower by at least 2 points than your current interest rate otherwise refinancing will make little sense.
- Jumbo Loan – If your original mortgage loan is a “Jumbo Loan” and you have brought down the unpaid principal loan balance within sustainable levels then your ability to qualify for low interest rate on your home refinance loan could get greatly enhanced.
- Closing Costs – Your decision to refinance home will attract some amount of fees in the form of closing charges. You can opt for paying these charges from your pocket or add them to the unpaid loan balance in accordance with your credit as well as financial situation.
- Mortgage Prepayment Penalty – Some mortgage loan providers even charge loan pre-payment penalties for a specified time period that vary according interest rate. Lower interest rate implies low fees but if loan is repaid earlier, the loan pre-payment penalty charges can be extremely high.
- Length of Time You Stay in the Home – To recover expenses incurred on closing costs during your effort to get an altogether new home loan with a pre-payment penalty clause, it could be vital for you to make sure that you will keep staying in the home for a much longer time frame.
- Your Credit Score – Your chances of obtaining a mortgage refinancing loan approval could get greatly enhanced if your credit rating has improved substantially ever since you got the original loan for purchasing your house. Timely monthly mortgage payments can help in building credit.
- Amount of Equity in Your Home – Majority of the home refinance loan lenders will approve your application quickly if your home value has appreciated and there is at least 20% equity in the home. However, the loan repayment terms offered may not be as much favourable.
- Adjustable Rate or Balloon Mortgage – If your existing home loan is an ARM or balloon mortgage then you might have to consider refinancing it at some point of time so as to continue staying in your house. But to get approved, accurate documentation is necessary.
- Loan Term – To repay your original mortgage loan faster, you could think of securing a refinance home loan with a shorter duration and slightly higher monthly payments. You can obtain a lower rate of interest pay back the mortgage as per your original schedule.
- People Listed on the Refinanced Mortgage – If you remove your spouse’s name from mortgage for whatever reasons, lender may ask you to get home loan refinanced. This helps in determining whether your spouse can be eligible to get a loan or you yourself are eligible to get one.
- Second Mortgage or Home Equity Loan – In case, you have a second mortgage loan, home equity loan (HEL) or a Home Equity Line Of Credit (HELOC), it could be possible for you to save some money by getting it refinanced along with primary mortgage if home value exceeds the total debt.
