Refinancing doesn’t pay off your debt but it can be a great way to restructure it and save money by securing a lower interest rate and a different loan term. As a homeowner, you may have opportunities to save money that you didn’t even realize!
There are several things to think about and consider before reaching out to a banker about refinancing so let’s go over the basics now. Knowing when to refinance your home loan could impact your overall costs of refinancing. Here’s how to stalk out the best rate and pounce on the best home loan refinance for you.
About Refinancing a Home Mortgage Loan
Being able to refinance a loan enables a borrower to replace an existing home loan with new terms. Ideally, the transaction needs to have financial benefits, as well as enough money to satisfy any liens that are attached to your home.
A refinanced loan is considered a rated term transaction or a cash out transaction. Rate and term loans are purely used to pay off an existing mortgage balance and a modest amount of closing costs. However, if you intend to consolidate other bills or to receive monetary proceeds, a cash out refinance may be used to replace your existing mortgage loan.
The Equation for Smart Timing
Loan Request
Lenders will use an appraisal to determine the amount of equity within your home. It is a great time to refinance when your new loan request will represent less than 80 percent of the appraised value of your home. Securing a loan for less than 80 percent of your home’s fair market value could enable you to avoid mortgage insurance and to qualify for premier interest rates.
Review Your Credit Report
You should review your credit score prior to inquiring about mortgage lending options. Erroneous information on your credit report could prevent you from securing more favorable mortgage terms. Inaccurate details that are displayed on your credit report may be disputed with the respective credit bureaus.
Settle Past Due Debts Before Refinancing
If you have collections, judgments or other items that appear on your credit report as bad debts, you might be able to speak with certain creditors about settling your debts. For instance, some creditors might accept as little as 30 percent to resolve a past due debt. Smarter strategies could enable you to clear up past due debts before contacting a mortgage lender.
Check Online Home Lending Rates
Many popular financial websites offer online resources that enable consumers to check the prevailing interest rates for various mortgage products. You can get a vast amount of information and support about refinancing just from doing a quick online search on a reliable site like Bankrate. With a sufficient amount of tools and support, you could select a wise time to refinance.
Low-interest rate environments are often heralded as the best time to refinance. However, your overall financial situation could improve via a consolidation loan that reduces your monthly expenses by several hundred dollars. Before refinancing, a mortgage lending professional might ask whether you intent to own your home for more than three years as the break-even costs for the loan could take more than 36 months.
This guest post is written by Rachelle Wilber. Rachelle is a freelance writer living in Oceanside, California. She does what she can to find an interest in all things around her, which prompts her writing. You can find her on the beach, at the gym, or shopping when she isn’t writing on her porch. Follow her on twitter, @RachelleWilber.
