4 Signs It’s Time to Refinance

Refinancing – or replacing your current mortgage with a new version – is a great way to save money on monthly payments or raise some extra cash for a specific purpose. But refinancing needs to be completed at the right time to be successful: Here are four signs that it may be time for you to apply for a refinance:

1. Value and Rates are Low Enough to Save You Real Money: The market value of your house and the current rates are the most important factors in a successful refinance. Typically, lenders will only refinance around 80 percent of your home’s value, which means your loan principal needs to be small enough – or your property value large enough – to support the switch. If home prices have been on the rise in your neighborhood in the past couple years (a common trend as construction and house sales begin to rise once again), this is a good sign you can qualify for a refinance. However, you also want to save money on those monthly payments, so examine the rates that lenders are offering. The advertised rates are usually the best possible, not any promised rate, but they will still give a great idea of the current rate environment. Ideally, you want average loan rates for your type of mortgage to be a percentage point or more below where they were when you received your first home loan. This can help you save a significant amount of money each month.

2. You Have Built Up a Couple Years of Strong Finances: Lenders will examine your past financial activity carefully during the refinance application. To impress them, you should have at least a couple years of making regular payments on your first mortgage and any other debts you may have. Your bank statements and financial history should also show steady income levels and a general history of financial stability and wise decisions. The three credit bureaus – TransUnion, Equifax, and Experian – offer free credit reports and very low-cost credit scores online. Wise financial practices will lead to a score well above the minimal “740” and prepare you well for a refinance.

3. You have a Value-Adding Expense: Saving money on monthly payments is nice, but many people want a cash-out refinance that borrows a little extra money available as cash. Your property value has to be significantly higher than your current mortgage principal remaining for this type of loan, but a clear purpose for the money is also important. Do not borrow extra cash unless you are using it for a value-added expense. College education or new business endeavors are common examples. If you have several types of debt, you could also use the cash to consolidate your loans under one low rate and save money while improving your credit.

4. Closing Costs Pose No Problem: Under the best circumstances you can wrap in closing costs into your refinance and spread them across your monthly payments. This will increase your payments slightly, but also means you can save the $1,000 to $3,000 that closing costs typically require. On the other hand, if you have cash saved up you can pay that off now and enjoy lower monthly payments. Many lenders will also offer lender credits to cover the costs, at the price of a small increase in the loan rate. Bring out the calculator and see how many months of savings it would take to recoup closing costs before making a decision.

Emily Cross is a professional blogger the provides information and advice for car title loans, a car title pawn and personal loans. She writes for Title Max, a leading title loans and car title pawns store.

 

Tags: fha refinance, how to refinance, loan refinance, mortgage, mortgage rates, mortgage refinance, refinance home, refinance mortgage rates

Category: Mortgage