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Wednesday, May 28, 2014

Home Refinancing: Terms and Considerations You Should Know First

With rates still at all time lows, the volume of homeowners hoping to refinance their home is on the rise. However there are many factors to evaluate when considering a home refinance.  Make sure you understand the information below before contacting your lender for a home refinance.

Four Areas to Consider:

  • What are your mortgage goals?
  • What are your personal priorities?
  • Loan Terms and Variables
  • Other Options

What are your mortgage goals? 

Every homeowner has a unique situation and when it comes to home refinance options and there is never just one solution for everyone.  This is because various factors like your current interest rate, length of time spent in the home, credit rating, value, etc are different from anyone else's.  Your financial goals should be able to determine what type of refinancing you will need.  

If you are unsure of your mortgage and financial goals, you should consider talking to a financial adviser who may be able to suggest different strategies.  

What are your personal priorities?

Some homeowners want a lower rate, and some want a lower term or payment.  It's important to consider the following priorities before deciding on your best home refinancing option:

  • How much longer you plan to stay in your home
  • What is your interest rate now vs after a refinance?
  • How many months of payments do you have left on your current mortgage? 
  • What are your mortgage payments now vs after a refinance?
Some of these questions can be difficult to answer but it's important to identify them ahead of time.  

Loan Terms and Variables

It's vital that you know all the mortgage terms and variables before you refinance your home, especially if it's been a while since you have had your mortgage.  Consider the following:

  • Closing Cost to Refinance - Closing costs are miscellaneous costs that are related to the close of a Real Estate Transaction.  Whether you purchase a home or refinance a home, these costs are incurred.  Beware that attorney fees, appraisals, credit reports, homeowner's insurance, title insurance, and more could be associated with these costs.  
  • Loan Term - in other words, the length of the loan.  Most commonly used programs range from 15 to 30 years.  The longer the duration of your mortgage, the lower your payment and vice versa.  Click here to compare a 15 and 30-year fixed mortgage.
  • Current Interest Rate - The rate you currently pay on your mortgage 
  • Home Refinance Interest Rates - You'll want to be sure that this is lower than your current rate if your mortgage goal is to lower your monthly payment or interest amount paid.  
  • Credit Score - The better your credit score, the more favorable your loan terms will be.  Anything over 740 is usually considered great credit and anything below 580 is generally viewed as bad credit.  

Other Options

If your mortgage goals don't align with the current rates and trends in the market, you might want to consider other options like saving more money to pay off your mortgage faster or a reverse mortgage, which would eliminate your monthly payments entirely.  

What are your mortgage and refinance goals? We would love for you to share them with us below.  

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