Almost every homeowner wonders whether or not they should seek a better home loan rate at some time or another. The appeal of lower interest rates, the ability to take advantage of equity in the home or to even pay off debts can have a strong pull. But is seeking a lower home loan rate the wisest move for you? There is more to getting a better home loan rate than often meets the eye and after taking a closer look, you may be surprised at what you find.
Do you qualify?
In order to refinance you must qualify, just as you did with your initial home loan. This means that you'll need to:
Be in good standing on the home loan you already have- If you're behind on your current mortgage then you may be asked to catch up on those payments before you'll be approved for a another loan. If you can't pay the loan you have, you'll be seen as unlikely to pay on any new one you may get as well.
Have no other lines of credits - If you have a second mortgage already, chances are you won't be able to refinance. Lenders have to seek approval from the secondary lender before they can refinance the first loan and with the housing market being as rocky as it is, many lenders are just not willing to risk becoming second in line to another lender.
Have enough equity in your home- You can't refinance simply because you want to, your home must have equity, and this equity must be based on your home's current value. As a result, qualifying for lower home loan rates can be tricky for individuals who purchased their home for much more than what it is currently worth.
Can you afford it?
It comes as a surprise to many that the costs of refinancing can outweigh the benefits.Refinancing costs can range any from between 1%-3% of the value of the loan. This isn't an incredible amount of money if you plan on living in the home for an extended amount of time; if not then you may want to reconsider. If you don't plan on remaining in the home for a few years then you could end up spending more on refinancing costs then you would save by doing so.
Refinancing is optimal for individuals who are:
• In good financial standing
• Paying a high rate of interest
• Planning to live in the home for a reasonable amount of time
• Want to switch from a variable rate loan to a fixed rate loan
by Marcus
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