Take the time to calculate the numbers before you start applying for a home refinance.
As states continue to make difficult decisions about reopening the economy, many homeowners are considering taking advantage of lower interest rates with a mortgage refinance. According to Freddie Mac, mortgage rates reached another record low with 30-year fixed-rate loans averaging 2.98 percent and 15-year fixed-rate loans averaging 2.48 percent.
Interest rates have steadily declined since the Federal Reserve made emergency cuts in March in response to the coronavirus pandemic.
Since interest rates are so low, now may be a good time for you to consider refinancing your home or taking advantage of your home equity to get a loan. Consider using an online tool, such as Credible, to see all of your refinance options and compare lender rates and fees.
How much capital do I need for a mortgage refinance?
When lenders refer to equity in a property, they mean the difference between the value of the home and what you owe on your loan. For example, if your property is worth $ 400,000 and you owe $ 200,000 on a home loan, you have 50 percent equity.
Many homeowners consider refinancing their mortgage if they bought it without a 20 percent down payment. If you have less than 20 percent equity in a property, your lender may require you to pay private mortgage insurance (PMI). Once you have at least 20 percent equity, you may be able to refinance your loan to remove that PMI fee.
While many lenders want to see at least 20 percent equity before considering refinancing a home loan, you may be able to take advantage of the lower rates with a refinance, if you have an excellent credit score. Use Credible to see what kind of rates are currently available to you.
PERSONAL LOAN OR HOME EQUITY LOAN: WHICH IS BETTER?
How do I know how much capital I have on my property?
The easiest way to determine how much equity you have on your property is to subtract the amount you owe on your loan from how much your home is worth. You can get a rough estimate of the value of your property by looking at the number of similar homes in your neighborhood obtained in the market. Alternatively, you could pay an appraisal, which could cost you up to $ 450.
When calculating how much equity you have in your home, be sure to consider your LTV (loan-to-value) ratio. To determine your LTV, divide your loan balance by the current value of your home.
Using the example of a $ 400,000 property, suppose you owe $ 150,000. His LTV would be 37.5 percent. If you apply for a $ 100,000 home equity loan, your new LTV would be 62.5 percent (and your equity will drop to 38.5 percent).
HOME EQUITY LOAN VS. HELOC: WHICH IS BETTER?
Is my mortgage refinance right for me?
Even at low interest rates, refinancing your mortgage may not be the right option for you. If you plan to move within the next five years, or the refinancing costs of your home loan exceed the amount you would save, refinancing is not worth the time and money.
Remember, when you refinance your home loan, you will receive a new loan. Taking out a new loan means you must qualify. Your credit score should be in order, and you should be comfortable paying closing fees and other costs associated with your loan. These costs could range from $ 1,500 to $ 5,000, according to Trulia.
Refinancing your home could save you thousands of dollars and lower your monthly payment. You’ll reap the most significant benefits if you find a trustworthy lender with the best rates and avoid common setbacks like accepting the first offer, forgetting to run the numbers, or allowing your home to lose its patience before you apply for a mortgage refinance.
If you are going to spend the time and money to refinance your home loan, be sure to take the time to compare various offers from different lenders. A difference of even 1 percent can make a big difference during the life of your loan. Use a tool like Credible to view rates from various lenders.
MORTGAGE RATES HAVE BEEN A ‘SWEET POINT’ – WHY IS THE PERFECT TIME TO REFINANCE
