By Wendy Croix
For most people, home finance is the single greatest investment of their lives. Factors that determined the finance of the original loan—the borrower's income, assets, and credit history—determine the refinance as well.
The owner now has home equity (principal paid plus appreciation) on his or her side. The longer the owner has had the mortgage and the hotter the local real estate market, the greater the equity. So, the issue in refinance is this: should the owner risk the home's equity to get a lower interest rate? Here's how to decide.
Ready to Refinance?
A buyer is ready to refinance if he or she:
- Wants to stay put, at least for several more years
- Is in a better place financially than when the original loan was acquired
- Needs to lower monthly payments
- Wants to swap a 30-year for a 15-year mortgage
- Wants to switch from an adjustable to a fixed rate loan
- Wants to put home equity to work, to finance renovations or a much-needed major purchase
Also, a buyer is ready to refinance if the money saved on lower monthly payments over the next two to three years is equal to or greater than refinance costs.
However…
Buyers who refinance at a lower interest rate still won't get a good deal if they:
- Incur significant costs (application fee, points, loan origination fee, title search fee, appraisal, etc.) in getting the new loan
- Incur significant penalties for paying off the original loan early
- Have owned the home for some time and current payments are more principal than interest
With the right research, you can make a well-informed decision about whether or not it’s time to refinance your home.
Sources
NEMMAR <www.nemmar.com>
Realtor.com <www.realtor.com>
