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Is Now the Time to Refinance?

October 3, 2011

As rates go lower than a yogi doing the limbo many of my clients are asking me if it could be the perfect time for a refi.  Remember, a refi means you are buying the property all over again and there are rarely any “shortcuts”.

Here are two important things to consider:     1) What do you want to accomplish with a refi? and 2) Is your current situation conducive to a refi?

First, the most common reasons to refi:

  • Lower Your Monthly Payments– Calculate if the lower monthly payments you will get by refinancing will be worth it for you in the long run. Take the total cost to refinance (your lender can provide an estimate) and divide it by the monthly savings (your current monthly payment minus your proposed new one). This gives you the “breakeven point”, or the number of months you will need to stay in your house to recover the costs you paid to refinance.
  • Change the Term of Your LoanIf you feel you can afford a higher monthly payment, you may consider refinancing to decrease the term of the loan. A shorter-term loan can help you build equity in your home quicker and save you a significant amount of money over the life of the loan.
  • Switch Loan TypesIf your current loan is an adjustable rate mortgage (ARM) and your rate is about to adjust to a higher one, or you are just tired of the uncertainty of an ARM, it may be time to refinance to a fixed rate loan. Your monthly payment may increase, but if interest rates are on the rise, your ARM loan could end up climbing to a higher payment in the long run.
  • Tap the Equity on Your HomeYou build equity in your home by paying down the principal on your loan or having the value of your house increase from the time you bought it. If you have enough equity in your home, you may be able to refinance to get cash out. You may want to do this if you need money to consolidate debts, pay for college tuition, make home improvements, etc. Depending on the interest rate you can get, it may reduce your overall monthly payments if you use the money to pay off other debts.

Second, can you do it?  Here is what a lender will look for in order to approve a refi:

  • How much equity do you have in the property?  You will need to show some equity in order to qualify for a refi and of course to get cash out. The amounts vary by lender and products.
  • How good is your credit?  Remember, you are qualifying for a loan all over again so the same standards apply.  The better your credit and assets, the better products you are eligible for.
  • Do you own a condo or single family home?  Just like in a purchase, there are more hoops to go through on condos to get the loan.

Feel free to contact me to see if a refi may be in your future and for referrals to reputable lenders to help you through the process.

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