Everyone is talking about mortgage refinancing, but it’s not all that simple. We are talking about people’s homes here and no decision should be made lightly. It is true that rates are low today and chances are they will stay low for a next few years. Nevertheless, you should ask yourself a few questions before signing up for any mortgage refinancing offer. Here are those questions…
1. Do You Have an Adjustable Rate Mortgage?
If you have an adjustable rate mortgage, you may want to lock in lower rates. With refinancing, you could potentially move to a fixed-rate 15-year or 30-year loan. Today, rates on those loans are lower than the historical averages over the past 40 years. That being said, we can’t imagine that “waiting and seeing” approach will further lower the rates.
2. How Long Do You Plan to Stay in Your Home?
Despite low rates, if you don’t plan to stay in the house that could be the subject of refinancing, perhaps you are better off getting out of debt faster, rather than extending the loan for a few more years. On the other hand, if you plan to stick around, do the math and see how much you could save per month by refinancing the mortgage. This also applies if you want to keep your “old” house/flat even after moving to a different home.
3. Do You Qualify?
This should’ve been the first point. Lenders won’t accept just about every applicant. They closely review each borrower’s credit score and home value when determining whether to move forward with a refi. Similarly to getting a new mortgage, you will again have to submit a number of papers, including those related to income, assets, job history, etc.
4. What’s Your Home’s Value?
How much your home is worth today will play a major part in how much money the bank/lender will give you. You may not have the exact number, but you should have a ballpark figure. Contacting a licensed Realtor or going online to research recent sale prices of similar homes in your area could help. Generally speaking, lenders prefer a loan-to-value ratio of 80%-85%.
5. Is There Any Other Reason Not to Refinance Today?
With all the instability in the world, you may be afraid of market volatility. There are actually many reasons why anyone would say “No,” and this is true for mortgage refinancing and everything else in life. Let’s face it – today’s rates on 15- and 30-year loans are lower than the historical averages over the past 40 years. So yes, if you’re playing with the idea – you should at least get some offer, discuss it with friends and family, and proceed (or not) from there.
Knowing where to start is a big part of that plan, though. There are services that could help you save time and money by comparing multiple lenders at once. One of them, Harp-Approved.com, has one of the biggest lender networks in the nation and what’s better is that they work with HARP lenders (government-sponsored Home Affordable Refinance Program) to provide consumers with a comprehensive set of mortgage options. Check it out and see if that’s something you could use…