While most people who own homes may want to restructure all of their finances based on low mortgage interest rates, everyone’s decision to refinance should be based on your personal finances and the financial circumstances you are in. The mortgage rates of the week should not make you decide whether or not you should refinance because you may not have the finances to do so.
Here are 6 important things everyone should know about before refinancing your mortgage.
- Know the equity of your home
The first main qualification you have to know in order to refinance your home is the equity of the home. Depending on your home, renovations on your home, and the location of your home, your equity rises and lowers. Refinancing with low or no equity on your home is not usually possible while refinancing with middle or high equity on your home is likely to always get approved. If you do have a low equity, it is possible to refinance through certain government programs.
- Know your credit score
Over the past few years, lenders have become increasingly strict and must require that you have a good credit score. But even then, most people with good credit scores may be stuck with a higher interest rate similar to one that a person with a lower credit score would have. Usually a lender will want someone to have a credit score of around 760 or higher to qualify for one of the lower or lowest interest rates.
- Know what your debt to income ratio is
Most people do not think of this, but this is something lenders look into quite a bit. If the lenders see that your debt to income ratio is not looking too good, it is likely they will not approve you for a new loan, even if you have a good credit score. Your debt to income ratio should be around 36% or less in order to be likely to get accepted for refinancing.
- Know the costs of refinancing
It is important to know the costs that come with refinancing when you want to. It usually costs about 5% of the total loan amount. Most lenders do require this cost in order to make some money off of the loan, but there are possible loans that lenders provide that do not have that cost. But with that no cost loan, that means that it is likely that the loaner will make you pay a higher interest rate.
- Know your break even point
It is important to calculate your break even point which is the point where the costs of refinancing are covered by your monthly savings.
- Know your taxes
A few consumers rely on the mortgage interest deduction to reduce their total federal income tax bill because if you refinance and can begin paying lower and lower interest rates, your tax deduction may be lower, so it is important to watch all of that.
If ever in need of professional help with refinancing, contact this Lancaster refinance company.