Knowing When and Why to Refi
Why Refinance? To save overall interests in the long run or to reduce your monthly mortgage.
Refinancing is a good idea if you can reduce the interest rate by 2% but many say 1% is incentive enough to refinance.
The first step to refinance is to know your home’s equity. Home values were on the rise last year but some homes have not regained value and some homeowners have low equity. If you are the latter, refinancing is not possible most of the time with your regular lenders but there are some government programs that can help you. Visit your lender to talk about your needs.
You have to know your credit score in order to refinance, some people with good credit don’t always qualify for low-interest rates since loan approvals have been tightened by lenders. Usually, you need a score of 760 or more to qualify.
Debt-to-income should be 36% or less, of course, that is not a fixed percentage, and lenders vary depending on some factors but that can go up to 43%. It’s better to pay off part of the debt before refinancing so you can qualify with the best rates.
You can take advantage of low rates before they arise.
You have debt for cars, credit cards, or other personal loans. If you refinance with a cash-out option or a home equity loan you’ll get a better rate. Also, remember mortgage interest is tax-deductible!
Before you refinance you should take a look at your financial situation and ask yourself how much money will you save by refinancing, and also how long do you plan to stay in that house.