Refinancing your current mortgage loan can be beneficial for many reasons, and it can also be costly. In essence, refinancing lets you capitalize on factors such as lower interest rates or improved credit scores by replacing your current loan with a new one. The same pre-qualification and application processes still apply, and be prepared to supply your loan officer with the same amount of detailed paperwork.
In order to determine if refinancing is a viable option for you, consider these questions:
- Do you plan on staying in your home for 3-5 years or more?
- Will your new interest rate be lower then your current rate by 2% or more?
- Did your credit recently improve?
- Do you have the available cash to cover closing and application fees?
- Do you have a lot of scattered debt that you would like to consolidate?
- Would you like to free up some cash using the equity in your home to make repairs or home improvements?
- Would you like to change the term of your loan or switch the type of mortgage plan, thereby saving money each month on your mortgage payments?
Chances are, if you answered yes to two or more of these questions, refinancing is an option that you should heavily consider. The general rule of thumb is that if you are able to lower your interest rates by 2% and are planning on staying in your house for 3-5 years or more, this option will benefit you.
The mortgage industry has exploded in last few years because of the falling interest rates and many homeowners are deciding to take advantage of the current downward trend. For example, the current index for a 30 year fixed rate mortgage, according to a national survey, is 6.02%. That is down from 6.43% at the same time last year.The three biggest reasons that people refinance are Debt Consolidation, a New Home Purchase, and to make Home Improvements.