Confused as to whether you should refi your mortgage? Here are the five key circumstances when you should refinance a mortgage. Welcome to our week-long series on refinancing your mortgage.In this.
· Refinancing: When is it worth it? When it comes to whether you should refinance your current mortgage, Chase’s Bailey said he generally uses the “half point rule,” which means the new rate.
If that number is within the timeframe you plan on staying in the house, you may want to refinance. If you’re planning on selling in the near future, refinancing might not be worth it. A good refinance calculator (like the smartasset one above, lucky you!) will show you the two scenarios – keeping your current mortgage and getting a new one.
· Even when mortgage rates drop, the decision to refinance a home loan can be an uncertain one. It may make sense to refinance if: You can refinance your fixed-rate mortgage into a lower fixed-rate.
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When you refinance and make your mortgage larger, you create a situation in which it’s difficult to entertain offers below your current mortgage amount. This is why banks typically won’t let you refinance a home unless you can keep your total mortgage amount below 80% of the value of the home.
Determining your eligibility for refinancing is similar to the approval process that you went through with your first mortgage. Your lender will consider your income and assets, credit score, other debts, the current value of the property, and the amount you want to borrow.
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· The more equity you have – the difference between the balance on your current mortgage and your home’s current market value – the easier it is to refinance. Borrowers with good credit and 20% equity can qualify for a conventional loan, which is the most common, and usually the cheapest, way to go for most borrowers.
Historically low rates. Ie if you are 5 years into a 25 year mortgage and you refinance, you can restart your 25 years amortization which will result in lower monthly payments. The problem with #1 is that you end up paying the extra interest anyway in the form of the termination fee, so you don’t really save.