What Do I Need to Know About Refinancing?
There are many things that you need to know about refinancing your home to make sure that you are getting the right loan for your needs. You need to know what you are getting into and know all the terms that you are agreeing to.
You need to make sure that you are doing your research before you agree to any loan, especially one that you will have for up to thirty years. You will need to look at other – or beste – lenders to make sure that you are choosing the one that has the terms that you want. If you do your research, you can find exactly what you are looking for.
The list below shows some of the things that you need to think about before you sign on the dotted line. These things are important for you to look at before you agree to anything. This information will help you to make a more informed decision before you sign any paperwork.
- You Need to Know Your Home’s Equity
You need to know how much equity you have in your home, if you have negative equity, it will not make sense for you to refinance. You should have at least twenty per cent equity in your home before you consider refinancing your home. If you do not have that much equity in your home, you might want to rethink your decision.
- You Need to Know Your Credit Score
You need to make sure that you have a good credit score before you think of refinancing. If you have a low credit score, it will be more difficult for you to get a refinancing loan. There are ways to improve your credit score if it is lower, mainly by paying off your debts in a timely manner. If you want lower interest rates, you need to have a credit score of at least 760. Anything lower than that will result in higher interest rates.
If you want to find out more about refinancing your home and all that it entails, you will need to do more research. You can find some more information here at this website: https://www.investopedia.com/mortgage/refinance/9-things-to-know-before-you-refinance-mortgage/. This website can give you all the information that you might need.
- You Need to Know Your Debt-to-Income Ratio
Your debt-to-income ratio is the amount of debt that you have compared to your income. Lenders want to see a debt-to-income ratio of about 36% or less to get you the loan that you need with the interest rates that you want. You might want to pay off some of your debt in order to get your debt-to-income ratio to be where you want it to be. If you pay off your debts, you might also raise your credit score which will also lower your interest rates.
- You Need to Know the Costs of Refinancing
The cost of refinancing can be up to six percent of your loan, but there are lenders that will let you wrap these costs into your loan. There are also lenders that will have no-cost loans, but you generally must have higher credit scores to get one of these loans. If you have a no-cost loan, you will probably also have a higher interest rate. You have to see if it is worth it to have a no-cost loan or if you want to make a bigger down payment.
- You Need to Know Rate vs. the Term
There are things you need to think about before you refinance your home. Do you want lower payments or a lower interest rate? Do you want to pay off your loan as soon as possible to save money in the long term, or do you want to save money each month?
If you want a lower payment, then you want a longer term to pay off your loan. If you want a lower interest rate, you will want a shorter term to pay off your loan. These are all things that you need to think about before you choose your loan. These decisions will help you to make the right choice for your loan.
- You Need to Know About Refinancing Points
Another thing that you need to think about to think about the points of the loan. Points are usually paid to bring down your interest rate, usually one percent of the loan amount. You need to know how much this is before you sign your loan. This will help you to know how much your payments will be.
- You Need to Know Your Breakeven Point
Your breakeven point is the point that the costs of your refinancing your home have been covered by your savings. After that point, your savings are yours and you will actually be saving money from your loan. You want to determine this to make sure that refinancing your home is worth it to you. If you plan on selling your home before you make your breakeven point, it might not be wise to refinance.
- You Need to Know Your Private Mortgage Insurance
Private mortgage insurance is necessary if you have less than twenty percent equity in your home when you refinance. If you were already paying private mortgage insurance, then this will not be a big change for you. However, if you have not been paying PMI, it might be a big shock to you and your pocketbook. You can talk to your lender or use a loan calculator to see if the cost of the PMI is prohibitive of you refinancing your home.
- You Need to Know Your Taxes
Many people have used the interest that they are paying for their loans as a tax deduction. Since 2017 when the federal government raised the standard deduction, fewer people have itemized their deductions. You will need to see if the interest that you are paying on your loan will be worth itemizing your deductions or if the standard deduction is good enough.
These are things that you need to think about before you refinance your home. There are many reasons that you might want to refinance, and those reasons must outweigh any concerns that you might have about refinancing. When you have thought everything through, only you can decide if refinancing is the best choice for you. If you have any concerns at all about refinancing, you need to speak to your lender and voice those concerns. They can help you by explaining things to you so that you will better understand the process and the costs.
