There are several reasons a person may which to refinance their loan with a mortgage company, however, this is not always the best solution. Customers must take a look at a few important questions to determine if a new loan provides the greatest benefit.
Are You Looking for a Fixed Rate?
Perhaps you signed on for an adjustable rate that has now skyrocketed, causing your monthly payments to rise. In this instance, a refinance is worth it if the fixed rate has a lower interest rate. If the economy is such that interest rates continue to decrease, then your adjustable rate may save you money over time.
Will You Qualify for a Refinance?
Although borrowing money in the past was simple, it has become more difficult. Customers must have excellent credit, solid documentation of income, and proof of savings. A large number of documents will be needed just to apply, so you'll want to talk with your banker ahead of time to see if you have everything you need to qualify. Otherwise, the process may not be worth it.
Do You Have Enough Equity in Your Home?
Another way to get approved for a refinance with your mortgage company is to have at least 20 percent equity in your home. While you still may be able to get the money you need without the 20 percent equity, you'll have to take on the additional expense of private mortgage insurance. With this extra charge, you may discover that you are no better off with the new credit that has been lent to you than if you had just kept your original price.
Are You Aiming to Pay Off Your Mortgage Ahead of Time?
Some couples find themselves in a position to take on a higher mortgage payment. There are two options for using this situation to your advantage and knocking off years from your loan. First, you can simply add extra to your principal each pay period and keep the original agreement with the bank as is. Second, you could reconfigure the agreement so that you pay a larger amount of money each month for a shorter period of time.
Do You Need Cash for Another Endeavor?
Refinancing with your mortgage company is one way to take out some of the equity in your home and use it for another purpose. Perhaps you'd like to start up a new business, add a mother-in-law suite to your current house, or pay for your child's college education. To determine if this move is worth it, take a close look at the returns you'll be getting. Your new business may double your income and your mother-in-law may be able to contribute to the household expenses.
Always take the time to do your homework before making any important financial decisions. Next, make sure your spouse is on board before going all in. Finally, you'll want to read all of the fine print before signing on the dotted line so that you and the banker are in complete agreement as to the terms of your refinance.
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