Because of the time, stress and paperwork involved in getting a mortgage many people are reluctant to consider refinancing their current mortgage.
However, if you consider the fact that going from a 6% loan to a 5.
5% loan can make a significant difference in the amount paid over a 30 year loan.
The refinance can make sense.
For example, a $150,000 mortgage for 30 years at 6% results in an approximate payment of $899.
00 and $173,757 in interest.
A $150,000 mortgage for 30 years at 5.
5% would have an payment of about $852 with $156,606 in interest.
The difference of $17,151 in addition to the $47 savings per month is a considerable savings over 30 years and may be wise to consider if you plan to stay in your home for 30 years.
If you choose to refinance, there are several things to consider before going forward.
- Closing Costs: Closing costs are charged when initiating a new loan.
A way to avoid some if not all closing costs is to agree to pay a higher interest rate than the current best rate available.
For example, if the current interest rate is about 4.
5% to 5% and you ask for a 5.
5% it may be possible to refinance at the 5.
5% rate with little or no closing costs.
The best way to find out for sure what is possible is to discuss your questions with a reliable lender.
- Payment History: Your payment history is very important.
Most lenders will not agree to refinance if you are behind on payments or have had a late payment within the past 12 months.
- Credit Score: Over the past year, lending institutions have increased their requirements for the minimum credit score required in order to obtain a loan.
Again, check with your loan officer to find out current requirements.
- Loan to Value: Due to the reduction of property values that have taken place the last two years.
Your property will need to be appraised to insure that it is worth the amount that you need to refinance to pay off the current mortgage.
The appraisal fee is the responsibility of the homeowner.
- Debt to Income Ratio: Your debt to income ratio is evaluated when your eligibility for a refinance is considered unless you are a Veteran applying for a VA Streamline Refinance.
A ratio of your total monthly income compared to the total of your monthly payments on your open credit lines, including mortgage, auto loan, credit cards, student loans, etc.
The ratio has changed over the past year and your lender can tell you what is required at the present time.
A VA streamline does not require a debt to income ratio if you are current on your mortgage payments.
- Length of Time you Plan to Live in your Home: If you plan to move within the next 5 years, you may want to consider checking into the terms and benefits of a ARM or Adjustable Rate Mortgage.