You work hard for your money and deserve the best possible mortgage interest rates and terms. Homeowners whose financial situation has changed over the years sometimes wonder whether they should refinance their mortgage. Although refinancing may improve your financial health, it’s a process that should not be taken lightly. Before refinancing a mortgage, thoughtfully consider long-term changes and be sure you fully understand the answers to the following questions.
When Should I Refinance My Mortgage?
Refinancing a mortgage is a relatively straightforward transaction where property owners secure a new home loan and pay off an existing one. As a homeowner who already qualified for a previous mortgage and built-up equity, a wide range of loan products are usually available. But before scheduling an appointment with a local lender like Peach State, it’s important to position yourself to receive the best possible interest rate and terms. Consider the following items to maximize your borrowing potential.
- Debt-to-Income Ratio: Debt-to-income ratio compares how much you owe each month on outstanding debts to how much you earn. Credit unions enjoy some flexibility and may count residual income to buoy your debt-to-income profile. Many lenders set the bar between 36-41 percent.
- Credit Score: Request a free copy of your credit report from AnnualCreditReport.com. Review the information, clear up errors, and address any outstanding issues that will help improve your FICO score. A score of 760 or higher helps borrowers gain access to low-interest opportunities. However, some credit unions may be willing to refinance homes of for members with less-than-perfect credit histories.
- Calculate Equity: Learning a home’s equity can be done by determining its fair market value. This figure is usually based on condition, square footage, architectural design, and comparing those elements to similar properties in your immediate area. After arriving at an estimate, deduct what is owed on the property to determine the equity. Lenders help determine your home’s equity by getting your property appraised. Typically, lenders like to see at least 20 percent equity when refinancing.
People generally consider refinancing when interest rates are low and they see an opportunity to lower monthly payments. Of course, working with a mortgage professional can help you understand the available options.
Why Should I Refinance My Mortgage?
There’s no one reason why someone decides to refinance their mortgage. Everyone has their own unique financial portfolios, goals, and needs. Although there is no simple answer, the following ranks among the more popular reasons.
- Low-Interest Rates: Those who took out a mortgage years ago may notice interest rates ticking down. Other homeowners may not have been able to take advantage of a lower rate previously. If you’re in a position to secure a lower rate now, refinancing could save you a significant amount of money.
- Reduce Monthly Payments: Growing families often feel a strain on monthly budgets. Refinancing can lower monthly installments and free up cash to enhance their quality of life.
- Fixed-Rate Preference: Transitioning from an adjustable rate mortgage (ARM) to a fixed rate product ranks among the popular reasons to refinance. This strategy helps people create a more reliable monthly budget and avoids potential increases should rates fluctuate.
- Home Improvements: Applying for a Home Equity Loan or Home Equity Line of Credit (HELOC) are common ways property owners cover the cost of upgrades. Refinancing is an option that does not result in adding a monthly payment to your existing bills.
- Early Repayment: It’s not uncommon for homeowners with 30-year mortgages to want to shorten the terms. When rates are favorable, and life goals include paying off a house, refinancing is considered a viable option.
- Debt Consolidation: Although refinancing isn’t widely thought of as a debt consolidation tool, it can prove useful. By pulling out funds to pay off high-interest credit cards and personal loans, homeowners reduce monthly expenses and save money. One perk people don’t always consider is that debt consolidation may improve your credit score.
Other reasons people refinance include allocating resources to savings accounts, or retirement programs, ridding themselves of mortgage insurance, or extending the repayment period to reduce monthly mortgage installments. Regardless of why you are mulling over refinancing, it’s essential to conduct thorough due diligence and work with an experienced professional.
How Do I Decide If Refinancing Is Right for Me?
When thinking about a potential mortgage refinance, consider personal timing issues. Ask yourself whether refinancing now furthers your financial goals and lifestyle interests. Consider crunching the numbers by using an online refinance calculator. If the estimates you see look promising, or you need more information, schedule an appointment with a mortgage refinancing professional at Peach State.
Where Should I Refinance My Mortgage?
Credit unions remain a valuable resource for community-minded people. Because credit unions do not need to generate exorbitant profits to pay wealthy shareholders, the savings can be passed along to members in the form of lower fees and loan rates. If you’re considering refinancing your mortgage, you can have the confidence that Peach State‘s mortgage team is here to help you find the best product for your needs. Contact Peach State to refinance your existing mortgage today!
If you are still wondering "should I refinance my mortgage" or if you are considering moving into a smaller home with a smaller monthly payment, download our "How Much House Can I Afford in Georgia or South Carolina?" guide.