Thinking about refinancing your mortgage? You’re not alone! Many homeowners have the option to refinance when they need to. However, refinancing isn’t always the right choice. It depends on your specific circumstances, but there are a few factors you can use to help you make your final decision.
What Does It Mean to Refinance?
In short, refinancing a mortgage means paying off your existing loan and replacing it with a new one. There are multiple reasons why a homeowner might refinance, including:• Lower interest rates• Tapping into home equity• Shortening the term of your mortgage
Considerations Before You Refinance
The first assessment you need to make is of your home’s equity. The higher the equity, the greater your chances of successfully refinancing. About 10-15% equity is ideal for having your request approved, but it all depends on the current housing market. The best thing you can do is reach out to a qualified mortgage broker to learn about the market, your options, and the amount of equity in your home.
Cost of Refinancing
Refinancing your mortgage comes at an additional cost – typically between 3-6% of your total loan amount. Fortunately, there are ways to reduce these costs or absorb them into your loan. Having a mortgage professional negotiate with your lender on your behalf may also reduce the costs.
Over time, lenders have only become stricter with debt-to-income ratios. Typically, your monthly mortgage payments should be no more than 30% of your income, and your debt-to-income should be under 35%.
Similar to your debt-to-income ratio, lenders have set stricter rules on credit scores. While you can certainly qualify with a passable credit score, you won’t necessarily receive the lowest rates. In fact, to get those low rates, you’ll need a credit score above 760. Working on your credit score in advance can help prepare you for successful refinancing, so be sure to begin working with your mortgage broker early to make sure everything is lined up.
Many homeowners rely on their mortgage loan interest to reduce their taxes. However, if you refinance your mortgage and start paying less in interest, there’s a good chance your tax deduction will be lowered.
Questions? Get in Touch!
I’m here to help with any questions or concerns you have about mortgages and refinancing. Contact me any time to talk about your options.