Refinancing a home can result in big savings if performed under the correct circumstances. Every mortgage and homeowner is different, so the best time to refinance for one person may not be the same for others. Prior to starting a refinance, think about these top 5 loan refinancing factors.
Top 5 Loan Refinancing Factors – Franklin TN Refinance Factors
1. Your Personal Needs
Your particular situation will determine whether you should refinance and what programs will meet your needs. How long do you intend to own the home? Will you possibly refinance again? Do you expect to convert the home into a rental property? Does your existing mortgage have a pre-payment penalty? Do you have money available to cover closing costs? These are all important things to think about and to keep in mind when calculating the benefits of refinancing.
2. Interest Rates
Interest rates are based on market conditions, credit score, loan amount, and loan term. First, look into whether rates are expected to rise or fall based on what is going on in the economy and with the federal government. No one can predict the future, but there are particular events that can directly affect rates. Second, find out what rate you qualify for according to your credit history and loan amount. The rate you receive may not necessarily be the lowest rate. Better credit history usually leads to better interest rates. Lastly, compare the current rate to your existing one. The difference (per month and during the length of the loan) should be weighed against the cost of refinancing. Generally, it is worthwhile if the new rate is one percent or more lower than the old rate.
3. Expenses for Refinancing
It is helpful to evaluate both the overall expense of refinancing and the cash needed at closing. Every loan has fees associated with it. Loans promoted as having no closing costs usually mean that they are either lumped into the loan amount or are reflected in a higher interest rate. Some costs, such as pre-paid expenses, are not classified as closing costs but require out-of-pocket expenses.
In most cases, a refinance will require some money brought to closing. Funds that you receive from your old escrow account may offset some of this. Additionally, you may have one month without a loan payment. For example, if you refinance during the month of June, you will have already submitted your June loan payment and the first payment on the new mortgage may not be required until August 1st. An exception to needing money at closing is a cash out refinance. In that instance, closing fees are deducted from the funds received.
4. Real Estate Market Value
You have likely heard the term loan-to-value. This percentage reflects the loan amount versus its current market value. The value of your home fluctuates with the real estate market. Although a real estate agent can provide a good estimate of market value, an appraisal is required to determine the exact dollar value. Maximum loan-to-value ratios are generally required (the exact amount depends on the mortgage program). If the value of your property is less than the mortgage principal, you will have difficulty refinancing unless you have money to reduce the loan amount. Some loan products, such as an FHA streamline refinance, may waive the appraisal requirement and thus make this less of an issue.
5. Mortgage Terms
Every financing program has certain criteria and restrictions. Below is a list of common ones:
- Loan-to-value Percentage
- Credit Ranking
- Type of Property
- Dollar Amount of Loan
- Percentage Change in Monthly Payment
- Existence of Non-occupant Owners
- Mortgage Insurance Amount and Duration
Franklin TN Refinance Factors – The Next Step
As you can see from the top 5 loan refinancing factors above, assessing a refinance includes more than comparing interest rates. It requires consideration of personal factors along with weighing of available options. An experienced mortgage professional can help you analyze these different pieces of information and help you come to an educated decision.
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