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When To Refinance Your Mortgage
Dated: August 9 2017
Refinancing can be a smart, money saving move. However, this is not always the case due to the costs associated with refinancing. This means that sometimes getting a lower interest rate doesn’t necessarily save you money in the long run. Consider the following when determining if refinancing is the right move for you at this time.
- Your Current Interest Rate
Generally, if you are in position to get a lower interest rate, looking into refinancing is worthwhile. Just make sure to consider how long it will take to recoup another round of closing costs associated with the refinance. Check out the current mortgage interest rates in Utah.
- The Closing Costs
After deciding that you might benefit from a refinance despite the closing costs, you will want to look at and understand how you will be paying for these fees. A few of the options available are paying the fees out-of-pocket and up-front, adding the fees to the loan amount or opting for a higher interest rate to cover the fees.
- Any Prepayment Penalties
Yes, some mortgage brokers, banks and lenders charge you for paying off your mortgage early. So if you’re lender charges a prepayment penalty you will have to the pay the penalty in order to refinance which increases the associated costs.
- How Long do You Plan on Staying in the Home?
The length of time you intend to stay in the home is important in terms of determining the worth of the closing costs. You will want to recoup the expenses before you move on to your next home to make refinancing worth it.
- Your Credit Score
The better your credit score, the lower your interest rate will be. Basically, if your credit score has improved you could now qualify for a much lower rate. We advise that you check your credit report to ensure accuracy.
- Your Debt-to-Income Ratio
Lenders usually require that your debt-to-income ratio is below 40 percent. In terms of refinancing, this is good news if you have paid off old debt or increased your income.
- Your Current Equity
Lenders also like to see that you have built up some equity before qualifying you for a refinanced loan. In some cases, acquiring 20 percent equity saves you money by allowing you to refinance to forgo the private mortgage insurance.
- The Term Length of Your Loan
Refinancing your loan to a 30-year mortgage over and over can be counterproductive. You never get closer to the goal of owning your home outright. Refinancing to a 15-year and even 20-year loan often offers lower interest rates and decreases the total amount of interest you pay over the length of the loan.
I have sold real estate full time with RE/MAX for over 16 years, specializing in residential and commercial real estate throughout Salt Lake, Davis, Weber, and Morgan Counties. I understand buying and....