Things to consider when refinancing your mortgage
Mortgage repayment is one of the most pressing issues a homeowner has to deal with while preparing his budgets. Consumers seek low monthly pay-out scheme so that it is less straining on their purse. In times of economic misfortunes like this the mortgage rates have plunged to an all time low, experienced since decades. Therefore, it is quite obvious that homeowners are rushing to the doors of the mortgage lenders to obtain a refinance on their existing mortgage in the hopes of saving some hard earned money.
But before taking onto the refinance bandwagon, it is very important to analyze one’s financial health so that there is nothing to regret after refinancing. So, for that reason here are few points that should be looked into before opting for a refinance:
Interest Rate – Mortgage-backed securities bought by the Federal Reserve have sent the mortgage rates crashing down. Now is the lucrative time to opt for a refinance. This way some money will be saved.
Duration – Refinance is profitable for those people who intend to stay in their current or principle residence for a longer period of time. This is because; loan amount depends on the duration of an individual’s stay on that property. The longer the stay is, the lower will be the loan amount.
Home Equity – There have been rise in the number of homeowners being “underwater”. This implies that these people have an outstanding mortgage loan that is more than the present market value of their principal residence. In such cases, getting a refinance is impossible unless the difference between the home equity and the mortgage loan amount is negated.
Costs – Many a times it’s been found out that there is a prepayment fine for paying off the existing mortgage with the refinance loan. Moreover, other costs such as the loan origination fee, attorney fee, appraiser fee, application fee and so on should also be taken into consideration before applying for refinance. These sorts of fees almost amount to 2-3% of the loan amount. Therefore, the calculation will help in deciding whether or not refinance is a smart decision.
FICO score – Before approving a refinance loan, banks look for the applicant’s credit or FICO score to know the person’s credit worthiness. Banks believe that consumers with a FICO score of 740 are the most suitable candidate to avail their best rate. The reason being so is that banks rely on such people after knowing their impressive credit score. It is quite unlikely that these people will default on their monthly repayments.
Every bank is coaxing the general consumers in to order sell their products before anyone else makes the cut. This is a good sign as there are several alternatives available to choose from. Therefore, it is a wise decision to do some prior market research and obtain few mortgage refinance quotes so as to select the best refinance loan from the available options.