Refinancing a home mortgage may lead to big savings if completed under the correct circumstances. Every loan and homeowner varies, so an opportune time for one person may not be for another. Before starting a refinance, take a look at these 5 factors for refinancing a home loan.

5 Factors For Refinancing A Home Loan

1. Your Unique Needs

Your personal situation needs should play an important role in your decision to refinance and the loan program you should select. When do you intend to sell the home? Will you possibly refinance again in the future? Do you intend to convert the home into a rental property? Does your existing home loan have a pre-payment penalty? How much do you have available to cover closing costs? These are all important questions to ask yourself and to discuss with your loan advisor.

2. Interest Rates

Interest rates are based on market conditions, credit rating, loan amount, and loan term. First, consider whether rates are expected to rise or fall based on what is going on in the economy and with the federal government. You cannot predict the future, but there may be particular circumstances that may directly impact rates. Second, find out what rate you qualify for with your credit history and loan amount. The one you can get may not necessarily be the advertised rate. You will receive better interest rates if your credit score is high. Lastly, compare the current interest rate to your old one. The savings (per month and over the length of the loan) should be compared against the expenses associated with refinancing. Typically, it is worthwhile if the new rate is one percent or more less than the existing rate.

3. Expenses for Refinancing

It is useful to understand both the overall cost of refinancing and the cash due at closing. Every mortgage has fees associated with it. Loans marketed as having no closing costs simply mean that the costs are either lumped into the loan amount or are covered by a higher interest rate. Some costs, such as pre-paid expenses, are not classified as closing costs but will result in out-of-pocket expenses.

Usually, a refinance will require some money brought to closing. Funds that you receive back from your old escrow account can offset some of this cost. 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 mortgage payment and the first installment due on the new mortgage will not be due until August 1st. An exception to requiring money at closing is a cash out refinance. In that case, closing fees would be deducted from the equity funds.

4. Real Estate Market Value

You may have heard the term loan-to-value. This percentage reflects the amount of your loan against its current market value. Because the real estate market continually changes, so will the value of your home. Although a real estate agent can prepare a good estimate of market value, an appraisal is required at the time you refinance to pinpoint the exact figure. Maximum loan-to-value percentages may apply (the exact ratio depends on the mortgage program). If the value of your home is less than the mortgage balance, you will have trouble refinancing without funds to reduce the loan amount. Some financing programs, such as an FHA streamline refinance, may waive the appraisal requirement and therefore make this less of an issue.

5. Qualification Conditions

Every loan program has specific qualifications and limitations. Below are common factors:

  • Loan-to-value Percentage
  • Credit Rating
  • Property Type
  • Dollar Amount of Loan
  • Reduction in Monthly Payment
  • Whether You Have Any Non-occupant Owners
  • Mortgage Insurance Amount and Duration

MA Refinance Considerations – The Next Step

As you see from the 5 factors for refinancing a home loan above, deciding to refinance includes more than comparing interest rates. It requires consideration of personal factors and weighing of all options. An experienced loan officer will help you analyze these different pieces of information and assist you with making an educated decision. For additional MA refinance considerations, contact Peter DaMore at Law Offices of Peter T. DaMore Jr..