Mortgages have reached some of their lowest levels in decades, and low interest mortgage loans have created a huge, renewed interest in home refinance loans. Many homeowners who bought their home years ago have historically high interest rates on their home mortgages. However, the current interest rates are luring homeowners into a refinancing frenzy. Reducing your home mortgage interest rate by as little as one percent with a new low interest mortgage loan can decrease the amount you pay in interest each month by approximately $125.00 for a $200,000 home loan.
So, when should you refinance your home with a new low interest mortgage loan? There are several factors that you should consider when deciding if a home refinance is right for you. Everyone’s situation is different, and you should consider your options carefully. There is a breakeven calculation you can use to help you determine if a home loan refinance is a smart move for you.
How Long Are You Going To Be Living There?
Most home refinances require the homeowner to pay a new origination fee of one percent of the new home loan. So, for example, if you refinance a $200,000 balance into a new low interest mortgage loan, you would have to pay one percent of that amount, or $2,000, to the bank for that new loan. This may not be as big of a deal as you may think if you are greatly reducing the interest rate of your mortgage. If you are saving $125 every month or $1,500 in savings every year, you can recoup that fee in less than two years. So, that becomes your breakeven point. You would most likely want to ensure that you will be in your home and not move (in this example for two years or longer) in order to make your new low interest mortgage loan pay for itself in cost savings.
Have You Been In Your Home A Long Time?
Another factor that you may want to take into consideration is how long you have lived in your home. In order to qualify for a refinance from one of the low interest mortgage loans that are now available, you typically have to have significant equity built up in your home. This is especially true if you are trying to receive a cash-out home refinance. One of the general rules of thumb that many mortgage lenders use when determining customers’ qualifications is that you can typically only borrow up to 80% of your home’s value. This percentage is called the loan-to-value ratio or LTV and can be a critical metric that lenders use to determine whether you qualify for a home refinance. Many people who have lived in their homes for a while are opting to refinance because it is now time to start putting money toward repairs. Paying contractors like All Around Roofing and Exteriors Inc can get very expensive, so saving money on interest rates is a great way to make it more affordable.
Lenders Typically Require an Appraisal
Your home has to have a current appraisal in most cases in order to qualify to refinance your home loan with a low interest mortgage loan. This has especially true in today’s housing market which has seen dramatic changes in home values across the country. You have to show that your home is worth more than the amount you request to borrow during a refinance, and it has to represent its current value in today’s real estate market.
A home refinance loan can be an excellent option for homeowners who have been in their homes for a while and plan to stay a little longer. With a refinance, homeowners can benefit from the cost savings of low interest mortgage loans that are currently available. In many cases, the interest rates on home loans have not been cheaper in decades.