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5 Things to Know Before You Refinance Your Mortgage

Interest rates are low, so refinancing for a new mortgage could be worth it. This is because of the low-interest rates and the outbreak of Coronavirus. It’s hard to determine where these events will affect next, but they have put a dent in housing prices.

It is not always a good idea to refinance your mortgage. When you consider the four things above, you will understand why it may not be the right decision for everyone.

Borrowers with good credit history often want to lower fixed interest rates; however, before refinancing your mortgage, you should think about four factors.

So, instead of purchasing a new home, some homeowners are deciding to take advantage of the low-interest rates available today. They want to free up capital or lower their monthly mortgage payments.

5 Reasons To Refinance Your Mortgage

Factors like low mortgage rates should not alone influence your decision to refinance. It can be the right move for some people but is not always the right move for every individual.

1. Know your home equity

Knowing what you owe for your mortgage and how much equity you have in your house can help you decide if refinancing is the right choice for you.

You need an LTV of 80% or more to refinance your home. Unless you already own at least 20% equity in your home, you may want to rethink its resale value, because if it hasn’t regained its value and/or if you are refinancing with less equity, you will have to pay high-interest rates or private mortgage insurance (PMI).

2. Research Lenders

For borrowers that have an existing mortgage, they may prefer to go with that company to refinance. However, different companies may offer different time frames and customer service options.

With many lenders to choose from, borrowers should consider a number of factors when shopping for a mortgage lender. These include the average time to close on a loan, customer experience, digital mortgage capabilities, customer service, and ongoing support services.

3. Your credit score for eligibility

In short, the better your credit score, the easier it is to refinance your mortgage. To get a new mortgage loan an individual needs to meet the lender’s requirements.

It requires you to have a credit score of 620 or higher and a 36% or less debt-to-income ratio to be able to refinance your mortgage. If you have a better credit score of 760+, refinancing will lower the interest rates on your loan.

If you have a low credit score, wait until you get it to an acceptable level before applying for the card again.

4. The cost of refinancing

Refinancing usually costs 3% to 6% of the principal amount. But opt for a “no-cost” refinance option with higher interest to cover the closing costs.

With low-interest rates and the ability to deduct their mortgage interest from federal taxes, many borrowers are enjoying the benefits of home loans.

5. Negotiate an interest rate

Often borrowers apply for a new mortgage when they are looking for rates- with low rates or long time frames. You must establish your goals when refinancing your loan.

The interest rates will change each year, depending on the market. You are more likely to get a loan on favourable terms if the interest rates have dropped or your financial situation has improved.

Conclusion

Housing prices are cheap right now because of the pandemic. Leverage this opportunity to save money and consider your financial situation before you contract for a new mortgage.

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