Considering a refinance? It's a great option for a variety of reasons; lower term, lower price or pull money out for remodeling or other necessities. Refinancing means you are paying off the old loan and taking out a completely new loan. This means that you'll need to apply again. Just because you have a mortgage now does not mean you can get another one. Things may have changed since you last applied such as change of job, familial status, or added debt. Things can also change for the positive including increased home value, higher paid job and paid off debt. All these things will affect your chances of getting a new loan and the terms provided by that loan.
Here are some questions to ask your lender and yourself before applying.
#1. How long are you going to stay in the home?
If you're planning on staying in the home for at least five years a refinance might be beneficial, however, if you're planning on moving within the next year or two, refinance me simply be a waste of time. Refinancing still has closing costs and if those outweigh the benefits you're going to receive in that short amount of time it might not be worth it.
#2. What is the reason for the refinance?
If you're planning on refinancing for a lower payment you'll want to make sure you can at least lower your interest rate by 1%. This should save you a significant amount of money each year and be worth it in closing costs. If you're refinancing to lower your term, save from a 30-year term to a 15-year term you want to make sure that you're saving a significant amount of money. If you're pulling money out for a remodel, make sure that the remodel adds enough value and that it makes sense financially.
#3. What the closing costs involved?
Closing costs for refinancing or just about as much as for a brand-new home purchase. There is such a thing as a "no-cost" refinance, even though it's not really a no-cost but it will be rolled into a higher interest rate. You'll want to verify all the closing costs and if they will be built into the total financing of the property or if you have to pay them outright.
#4. How has your lifestyle change since when you first applied?
As we first mentioned, how have things changed since you first applied? If you've increased your income and lower your debt you're likely to get a better interest rate and better terms, however, if your income has either stayed the same or decreased and you've accumulated more debt, your interest rate might go up, especially if your credit rating has gone down. Lowering your term from a 30 year to a 15 year or even lower is a great idea if you've increased your income and feel that you can maintain a higher mortgage payment each month. This is a great way to pay off your loan a lot quicker and save hundreds of thousands of dollars.
#5. Are you refinancing to get out of mortgage insurance or an ARM?
If you purchased a home with an FHA mortgage you should've also had mortgage insurance tacked onto your monthly payment. This is insurance in the case of the default that the lender will have some insurance to recoup the cost of the default. After the home has at least an 80/20 loan-to-value ratio you can remove this mortgage insurance. This might be a great time to refinance to a conventional loan with a lower interest rate or if you've had an ARM and the rates are about to go up, is a great time to refinance.
The bottom line is talking to your lender or your mortgage broker about your different options. It might be a great time to refinance before rates start to rise throughout the year. Take a look at the numbers and what your current interest rate and terms are and what works best for you in the future. Give me a call today for more information.