Refinancing your home loan can result in big savings if completed under the right conditions. Every mortgage and homeowner varies, so a good time to refinance for one homeowner may not be for others. Before making a decision to refinance, think about these 5 factors for refinancing a loan.

5 Factors For Refinancing A Loan

1. Your Personal Situation

Your specific situation situation should play an important role in your decision to refinance and the loan program you should choose. How long do you expect to own the property? Will you possibly refinance again in the future? Do you plan to convert it into an investment property? Does your current mortgage include a pre-payment penalty? Do you have funds available for closing costs? These are all important questions to ask yourself and to remember when evaluating the benefits of refinancing.

2. Mortgage Rates

Mortgage rates are determined by market conditions, credit history, loan amount, and loan term. First, think about whether rates are expected to rise or fall based on what is taking place in the economy and with the federal government. You cannot predict the future, but there may be certain events that may directly affect rates. Second, find out what interest rate will you receive according to your credit score and loan amount. The one you can get may not necessarily be the lowest rate. Higher credit scores often results in better interest rates. Lastly, compare the current rate to your old one. The savings (per month and during the duration of the loan) should be weighed against the expenses associated with refinancing. Typically, a one percent difference makes refinancing beneficial.

3. Expenses for Refinancing

It is useful to understand both the overall cost of refinancing and the amount needed at closing. Every mortgage has expenses associated with it. Loans advertised as having no closing costs usually mean that they are either lumped into the loan amount or are covered by a higher interest rate. Some costs, such as pre-paid expenses, are not classified as closing costs but will result in out-of-pocket expenses.

Normally, a refinance will require some money brought to closing. You may receive some funds back from the escrow account with the existing lender to offset some of this cost. Additionally, you may have one month where no mortgage payment is due. For example, if you refinance during the month of June, you will have already submitted your June mortgage payment and the first payment on the new loan will not be due until August 1st. One exception to the cash requirement at closing is a cash out refinance. In that instance, the amount due are deducted from the funds received.

4. Loan-to-Value Ratio

You may have heard the term loan-to-value. This percentage reflects the amount of your loan versus the property value. Because the real estate market continually changes, so will the value of your property. Although a Realtor can prepare a rough estimate of market value, an appraisal is required at the time you refinance to pinpoint the exact dollar amount. Maximum loan-to-value percentages will apply (the specific ratio depends on the mortgage program). If the value of your property is less than the mortgage balance, you may have difficulty refinancing unless you have cash to reduce the loan amount. Some loan products, such as an FHA streamline refinance, do not require an appraisal and therefore make this less of an issue.

5. Qualification Factors

Every financing program has specific requirements and limitations. Below are common factors:

  • Loan-to-value Percentage
  • Credit Rating
  • Type of Property
  • Loan Amount
  • Amount Saved Monthly as a Result of the Refinance
  • Existence of Non-occupant Co-borrowers
  • Mortgage Insurance Percentage and Duration

NH Refinance Considerations – The Next Step

As you can see from the 5 factors for refinancing a loan above, deciding to refinance encompasses more than comparing interest rates. It should include consideration of personal factors along with evaluation of all options. An experienced mortgage consultant will help you analyze all of this and assist you with making an informed decision. For additional NH refinance considerations, contact Customer Service at Accurate Title.