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Refinancing is not for everyone. There are costs that can make it
prohibitive, particularly if you plan to sell your property in the
next few years. While lenders typically offer varying interest rates
on their mortgage products, some have certain conditions, such as
prepayment penalties, that could make a seemingly attractive deal
far less appealing over time. Before you even consider home
refinancing, evaluate your needs to determine if you are a good
candidate. Answer the following questions before getting any
further into loan types, terms and tips.
1. Is your credit in good standing?
Poor or inadequate credit is one of the top reasons lenders turn
down prospective borrowers. Some lenders have loans available for
those with credit problems, but the loan will be at a higher
interest rate than loans offered to customers with good credit.
You are entitled to a free credit report if you are a victim of
identity theft, have been denied credit, receive welfare benefits
or are unemployed. Otherwise, you may be charged a nominal fee
for the report.
2. Has your home depreciated since you bought it?
The current value of your home largely determines how much you
can borrow. Determine the approximate value of your home and
compare your home to the sales price of comparable homes in the
area that have recently sold.
The property valuation used to evaluate your home for a loan
is likely to differ greatly from
those done by a tax appraiser, your insurance company or a real
estate agent. You can order your own property valuation, but
your lender may still require a separate one if you decide to
refinance. For an inexpensive alternative, contact a local
real estate agent or broker and get his opinion and a market
analysis on your home.
3. How long do you plan to stay in your home?
Refinancing costs money, usually approximately 2-4 percent of
your total loan amount. Generally, you do not gain anything from
refinancing until after you have saved enough from having lower
monthly payments to recoup refinancing costs. Calculate the time
you will need to remain in your home to recoup your refinancing
expenses.
When Do You Refinance?
When to refinance depends largely on the current interest rates
and your existing mortgage rate. If current rates are one or more
percent lower than that of your existing mortgage, it may be time
to refinance. Remember that you can refinance your loan more than
once if it makes sense to do so.
Topics covered in this section are:
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Selling A Home
Selling A Home