.jpg)
HOME REFINANCE FAQ
What are the reasons for refinancing?
There are many benefits to refinancing; it just depends on what your objectives are. Some of the most popular reasons are:
* To lower your monthly payments by refinancing at a lower interest rate.
* To convert a portion of your equity into cash by obtaining a new loan for a larger balance than your current loan.
* To switch from an adjustable rate to the stability of a fixed rate.
* To consolidate debt by refinancing a higher loan balance and using the cash difference to pay off credit cards, auto loans or other debts.
* To pay off the mortgage sooner by switching to a shorter term.
What are the costs involved in refinancing?
The closing costs, including lender fees, are typically 1% to 2% of the loan amount. In addition, you may choose to pay points in order to get a lower rate, or accept a higher rate in exchange for having the lender pay some or all of your closing costs.
What criteria do lenders use when approving a loan?
Lenders look at three criteria: Capacity, Credit and Collateral.
CAPACITY – The lender will weigh your housing expenses and total debt against your monthly income to determine your ability to repay a loan. They’ll also need proof that you have the cash available for down payment and closing costs by verifying funds from sources such as bank accounts, stocks, bonds, mutual funds, sale of an existing home, or gifts from family members.
CREDIT – To determine your credit risk, the lender will look at previous mortgage payment history, rent payment history, credit card use and installment debt payment history. If you pay your bills regularly and on time, you’re demonstrating the integrity that lenders are looking for in a borrower.
COLLATERAL – When you ask for a home loan, you’re putting the home itself up for collateral, so the lender will want to know what the home is worth.
Is it a good idea for me to refinance?
It may or may not be a good idea to refinance. The answer to this depends on individual circumstances and your financial goals. Refinancing may be a good idea if you want to lessen your monthly payment or reduce your interest rates. However, you should consider other factors as well such as your length of stay in your home, the points you are willing to pay, your home equity, and so on.
Is it necessary that I pay points to get lower interest rates?
The choice of whether to buy points is also entirely up to you, depending on what you want to achieve. Points are usually tax deductible in small increments. You can use this to your advantage as well.
How do I shop for a great new home mortgage deal?
Try to get in touch with at least three lenders and check on each of their loan terms, programs and rates. You can do your canvassing online or through phone.