Refinancing a mortgage can result in big savings if performed under the right circumstances. Every mortgage and homeowner is different, so a good time to refinance for one person does not necessarily apply to another. Before starting a refinance, think about these top 5 considerations in refinancing a property.
Top 5 Considerations In Refinancing A Property
1. Your Unique Situation
Your specific situation will determine whether you should refinance and what programs will meet your needs. When do you intend to sell the home? Will you possibly refinance again in the future? Do you expect to convert it into an investment property? Does your existing home loan include a pre-payment penalty? How much cash do you have available to cover closing costs – closing costs, if there are any, can be rolled into the mortgage so you don’t have to come out of pocket with these expenses? These are all important things to think about and to remember when evaluating the benefits of refinancing.
2. Interest Rates
Interest rates are based on market conditions, credit score, loan amount, property type, occupancy, and loan length. First, look into whether rates are expected to rise or fall based on what is taking place in the economy and with the federal government. No one can predict the future, but there may be particular circumstances that will directly alter rates. Second, find out what rate will you receive with your credit history and loan amount. The interest rate you can get may not necessarily be the advertised rate. Higher credit scores usually results in better interest rates. Lastly, compare the new rate to your old one. The difference (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 half percent or more lower than the old rate.
3. Costs of Refinancing
It is important to calculate both the overall expense of refinancing and the cash needed at closing. Every mortgage has fees associated with it. Loans promoted as having no closing costs usually mean that they are either added to the loan amount or are covered by a higher interest rate.
You may receive some funds back from the escrow account with the old lender to offset some of the loan costs. Additionally, you will have one month without a loan payment. For instance, if you refinance during the month of June, you will have already remitted your June mortgage payment and the first payment on the new loan may not be due until August 1st.
4. Real Estate Market Value
You may have heard the term loan-to-value. This ratio reflects the amount of your loan against its current market value. The market value of your property changes with the real estate market. Although a real estate broker can prepare a rough estimate of market value, an appraisal is required to determine the specific amount. Minimum loan-to-value percentages will apply (the exact percentage depends on the mortgage program). If the value of your property is less than the mortgage balance, you may have difficulty refinancing unless you have money to pay down the loan amount or your loan is currently owned by Fannie Mae or Freddie Mac taken out prior to May 2009. Some loan programs, such as an FHA streamline refinance & HARP programs, do not require an appraisal and thus make this less of a problem.
5. Mortgage Terms
Every loan program has certain criteria and limitations. The following are common ones:
- Loan-to-value Percentage
- Credit Rating
- Property Type
- Loan Amount
- Percentage Reduction in Monthly Payment
- Whether You Have Any Non-occupant Co-borrowers
- Mortgage Insurance Amount and Duration
MA Refinancing Considerations – The Next Step
As you can see from the top 5 considerations in refinancing a property above, assessing a refinance includes more than comparing interest rates. It requires consideration of personal factors along with weighing of available options. A knowledgeable mortgage professional will assist you with these different pieces of information and help you come to an educated decision. For further information contact Christopher Graves at Emery Federal Credit Union via phone at 978-376-5389 or email christopher.d.graves@gmail.com.
