Many reasons make people refinance a home loan, but the primary one is a better loan interest rate. The need to change into a fixed mortgage rate and shorten the loan payment term is just other reasons some would consider. Lately, there has been a build-up in the number of homeowners going for first mortgage refinancing. Is it a good idea? Some financial experts will tell you to go for it even if you can make a 1% savings from the entire loan refinancing. Here are things to remember when refinancing your home.
There is the initial cost of applying for a refinancing. This can be anything from 3% to 6 % of the entire credit. Also, consider that it will be termed as a new loan so it will be a new process that will involve carrying out searches and paying the required fees. Before you start the process, consult a Washington Dc, mortgage broker. He will let you know the available options and whether it is a good idea. Some mortgage lenders might not charge you an initial processing fee. For such, the loan interest rates might be higher. Is the amount you are thinking of saving equivalent or more than the loan rates for the mortgages in Washington dc? How long before you can break even or start enjoying the savings?
Your Home Equity
The more home equity you have, the easier it will be to get a refinancing according to First Savings Mortgage. Mortgage lenders check the equity value of your home before anything else. You should have at least 15% equity for you to consider refinancing your home. Lenders may even agree to carry forward the loan charges to the initial amount when you have a high equity. This means that you will not have to pay any amount when applying for the loan, but the same will be added to the principal amount. You might find that on the first mortgage, the home equity was quite high but due to some factors, it has dropped when going for the refinancing.
For instance, when homes are affected by natural disasters, their value goes down. Their worth drops way below their mortgage value. Economic factors can also change the home equity value. If you do not have any equity in your home, you can go for government programs that can assist in refinancing.
Mortgages in Washington DC that have low or no equity may be required to get a Private Mortgage Insurance. The same goes for the homes that have dropped in investment. If you had already applied for the insurance when going for the initial mortgage, this might not affect you, but when requested to do this when refinancing, it will mean adding another cost to the loan repayment. This may use up all the intended savings.
Your Credit Score
You might have a good credit history, but this is not the only thing Washington DC mortgage lenders will consider. You may not even have known that the credit score is also a determinant factor of the amount of interest charged on loan. Many Washington Dc mortgage brokers may go for a credit score that is above 720, but this does not imply that you cannot get refinancing because you have a lower credit score. What determines your credit score? How much debt you have and how smoothly you pay will determine your credit score.
Other factors include bankruptcy, court orders to pay up debt, late payments and debt collection cases. To ensure your credit score is stable and improving, do not accumulate debt and pay off loans smoothly. Avoid debt wrangles by communicating with the correspondent lender or other lenders of any delays in making the installment payments.
The Debt to Income Ratio
Another factor that a Washington dc mortgage broker will take into consideration is the amount of debt you have in comparison to your monthly income. A Washington dc mortgage broker knows you should not be paying more than 36% of your total gross monthly earnings. Some lenders may consider going for a rate as high as 40% but not more. They may deliberate on the high rate when one has a high monthly income. Other considerations they check are how long you have been in your current job and its stability. Other loans you may be servicing may factor in when the decision to refinance your home is determined.
How Long Will You Be in the Home?
If you do not plan to stay at the home for long, refinancing may not be a good idea. You need to consider the point at which you will break even, and the refinancing actually starts being profitable to you. This is the point at which the new loan costs have been covered by the amount you intend to save. For instance, if the cost of getting the new loan is $1500 and you will be saving $150 per month, it will take you 15 months to break even. If you intend to move to another home one year after refinancing, you will not have covered the costs and made any savings. Only think of refinancing if you intend to stay at the home for long to recover the costs of refinancing and gain some savings.
Shopping around for the right first savings mortgage lender is essential. When refinancing, you want a lender with the lowest interest rates and the best terms. You can even consider going for a correspondent lender if he can offer favorable terms at reduced interest rates. Another thing to ponder on is that some deals may look good at face value but taking the time to calculate or dig into their implications 5 to 20 years down the line will help you decide whether you are making the right decision. A reputable expert in mortgagees in Washington DC can help you make the right choice and get a more unobstructed view of what a refinancing means to your general financial wellbeing.