You have probably noticed that interest rates have been at an all-time low throughout the pandemic. Now is a great time to get a refinance loan on your home for many reasons, but we are not here to discuss that today. What we are here for is to talk about some refinance tips that will save you time and money.
- Goals: You need to have some goals in mind. There are many varied reasons why you would want to refinance you home, but before you do you need to know why. Are you wanting to get better rates, or perhaps you are wanting to eliminate the mortgage insurance that you were required to get. Figure out why you want to refinance and follow in that direction.
- Purpose: Once you have figured out why you want to refinance you will be able to push forward and follow those needs. As an example, if you are wanting to do a cash out loan to remodel the basement you will want to apply for that type of loan, not one that only covers the cost of what you currently owe on the original loan.
- Equity: Before moving ahead with a refinance loan you need to make sure that you have enough equity to get one. Many lenders will not even offer you a loan unless you have at least 20% equity built up. In case you have forgotten, the way to figure out your equity is to take the current market value of your home and subtract the amount that you have left on the loan. The difference of the two numbers is how much equity you have built up. It should be twenty percent of your homes current value. If not, keep working on the payments that you already have for now.
- Numbers: You need to check all your numbers to make sure that you have not become a higher risk than what you were in the first place. If you are needing to know how to refinance a home loan you need to begin by analyzing your specific situation. Check to make sure that your credit score is still high, and that your history shows stability in payments, living, and income. You will also need to know what your debt-to-income ratio is. They like to see this under 30%, the lower the better. The final number that you need to check is loan-to-value ratio. All these numbers will be checked and compared to your original application. If any of them are worse, your risk will be higher, and you may end up paying more than what you are right now.
- Compare: Gather all your papers together so you have them handy and start searching for a lender. The best way to do this is to use an online platform like iSelect, where they will do all the leg work for you within minutes. You will get numerous offers through their site partners and all you will have to do is choose the one that offers you the most money for the best terms.
- Appraisal: Before the lender gives you a refinance loan, they will want to have your home appraised, just to make sure that it is worth what the market says it is worth. Have your home prepared for this step by fixing anything that needs fixed, throw a fresh coat of paint on the walls and ceiling, and make sure that all the trivial things have been taken care of, such as replacing burned out bulbs and mowing the yard.
- Breakeven Point: The last aspect that you need to take into consideration is the breakeven point. This is how long it will take you to actually see the benefits of a lower mortgage after you have paid the closing costs. To figure this out all you need to do is take the amount of the closing costs (total amount) and divide it by the amount of money that you are saving every month (compared to the original loan.) If you must pay for several years to see the savings, it may not be worth your time to go through the process.
These refinance tips will save you time and money because you will be more prepared for the application process than you were the first time. You have gone through it before, so you already know what to expect. You know what the lenders will want from you, and you already have the equity built up to show them that you have no problems making the payments.
Just make sure, as mentioned before, that getting a refinance mortgage is the correct step for you. If you end up paying more after you go through the process it will not be a joyful day in your household.