Things To Know About Refinansiering Or Refinancing

things to know about refinancing loans

Refinancing Loans

In today’s tough times, a lot of people are thinking about refinancing their homes and sometimes their cars. Refinancing loans is not as tough as it sounds and if you have good credit, it can be easy for you, too. It can be a little tougher for people with fair credit, but it can still be done. 

You need to do your research and find a good lender before you try to refinance your home. You can look at bes√łk to see what they have for you. They may have the perfect refinancing information for you. 

You also need to learn all about refinancing a loan before you take the plunge. You will want to know that you are not getting taken advantage of. If you know all the ins and outs of refinancing, you will be a less likely target. You can also check into the Better Business Bureau or your state’s attorney general’s office to make sure that the lender you choose is legitimate. 

Things To Know About Refinancing

1. Know Your Home’s Equity 

Before you even begin to look for a lender, you need to know what your home equity is. Home equity is the amount of money your house is worth compared to how much you have paid on it. During the last few years, home prices have risen way up which made home equity rise, as well. If your home is now worth more than you paid for it, then you have a positive equity. If you owe more than you did when you paid for it, you have a negative equity, and it would not be worth it to refinance your home. 

It is important to know where your equity stands so that you can refinance if you need to. It will also give you an amount of money to refinance for. You want to refinance for only what you need so that you will not be paying hefty mortgage payments for years to come. 

2. Know Your Credit Score 

You will also need to know what your credit score is, because if it is not high enough you know that you should not refinance. If your score is higher that means that you have been paying off your bills on time and it would be a good time to refinance. Lenders want to see a credit score of at least seven hundred sixty or higher. 

If your score is not at seven hundred sixty or higher, look at your credit history and see what you can do to improve it. There may be bills that you could pay off or there might be things that do not belong on the credit report that you can dispute. You will need to clean up your credit report and get your score to at least seven hundred before you refinance. 

3. Know Your Debt-To-Income Ratio 

You will also need to know your debt-to-income ratio, or DTI, before you can refinance your home. Your debt-to-income ratio is the amount of monthly bills compared to your take home pay. You usually want your DTI to be under thirty-six percent and so does your lender. This way you can assure your lender that you will have the money to pay the refinancing loan, and you will be more likely to get the loan. 

The DTI information is important for you and your lender because you want to make sure that you can afford the rest of your monthly bills and have a little left over for savings each month. You want to make sure that you do not go into debt and lose your home completely. 

4. Cost Of Refinancing 

The cost of refinancing your home can be as high as six percent but there are many cases where the costs of refinancing can be wrapped back into the loan for a bigger principal. If your equity is high enough, you can wrap those costs back into the loan. Some lenders even offer no-cost refinancing with a higher interest rate. If this sounds good to you, you should shop around and find the right refinancing loan for you. 

5. Rates Vs Terms 

Most people look at loans to see if they can find the lowest interest rate, others look at the term of the loan because they want to pay off the loan as quickly as possible. There are loans that can satisfy both of those types of people and others, as well. There are different ways to look at your loan – do you want to have a lower payment and longer term? Or do you want to have a lower interest rate and longer term? Still another option is having higher payments over a short period of time. It is all up to you to decide, only you know what your circumstances are. 

These are all things that you need to think about before you refinance your home. You want to make the best decision for you and your circumstances. 

6. Refinancing Points 

One of the things that you need to look at is the refinancing points that can equal about one percent of the loan amount. You can pay points off at the beginning of the loan in closing costs or wrap them into the principal of the loan. Make sure you calculate what the points will be before you sign the loan papers. 

7. Know Your Breakeven Point 

Another important thing to look at is your breakeven point. The breakeven point is the point in which the money that you save is all yours. For example, if the refinancing costs your two thousand dollars and you are saving one hundred dollars per month, your breakeven point is in twenty months. If you are not intending to stay in your home for more than two years, it would really not make sense for you to refinance your home. 

You want your breakeven point to make sense because you do not want to refinance your home if it does not. If you are planning on your home to be your forever home, then the above example makes sense. 

8. Private Mortgage Insurance 

If you have less than twenty percent equity in your home when you refinance your home, you will need to pay private mortgage insurance, or PMI to insure your mortgage. If you are used to paying PMI, this will not be a big deal to you. Some homeowners have not had to pay that for various reasons. A lender can help you to see if the difference in PMI payments is enough to choose not to do the refinancing. 

9. Know Your Taxes 

You will also want to know what kind of taxes that you will be paying on your refinanced home. Many people are used to having a mortgage interest deduction that helps to lower their federal tax bill every year. If you do refinance and have lower payments, the amount of interest that you pay will also be less, therefore your tax bill will be higher. That is something else that you need to think about before you refinance. 

Questions To Think About For Refinancing

1. Can I Refinance With The Same Bank? 

Yes, you can, is the short answer, but you may not want to. The one advantage that you will have if you use the same bank is that they have all the information about you that they need. But if you are looking for the best deal, your same bank might not be the best option for you. 

2. How Quickly Can I Refinance My Mortgage? 

You can refinance your home any time that you want, but it might be better for you to wait until the interest rates are much lower than when you first bought your home. Some lenders have rules against immediately refinancing with the same lender, so you might want to look around for a better deal. 

3. How Much Equity Do I Need To Refinance? 

You will need to have at least twenty percent of equity in your home to refinance if you want to avoid the PMI. Otherwise, it does not really matter how much equity you have in your home. You can refinance without any equity in your home, it just might cost you more in the long run. 

4. Can I Buy A Car While Refinancing? 

You can do what you want, however, most lenders often advise against it in the weeks or months of your refinancing loan being assessed. Dropping even just a little bit, even a point, can affect your financing. Even if your new car payments affect just your DTI, it can mean that you do not get your loan. 

Refinansiering Loans Conclusion

These are just a few of the things that you need to think about before you refinance your home. All the above will have an impact on your loan and the payments that you make each month. You want to make sure that you talk about all this with your lender before you sign any paperwork. You do not want to be surprised with fees that you did not ask about or with any items that you did not know about. 

You will want to make sure that you find a lender that will share all this information with you and does not try to hide anything from you. You do not want to be taken advantage of by an unscrupulous lender when refinansiering a loan. You want to make sure that you do some research and look into the Better Business Bureau and other places like it before you choose a new lender.

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