Saturday, May 26, 2018

Can I Refinance My Mortgage? Here’s What You Need to Know

A mortgage payment is usually the largest line item in your monthly budget. Wouldn’t it be great if you could save some money by lowering your mortgage payment? Some people will be able to do just that by refinancing their mortgage. If you’re wondering can I refinance my mortgage and save money, answer the following questions to see if you could benefit from refinancing.

Do You Qualify for a Mortgage Refinance Loan?
Even though you already have a current mortgage on your home, you’ll have to start the mortgage application process all over again to refinance your loan. You’ll need to make sure your credit, employment history, debt to income ratio and the equity in your home all meet the minimum requirements to be approved for a mortgage refinance. While requirements will differ from lender to lender, here are a few guidelines to see if you qualify.

Most lenders like to see a credit score of 620 or higher to qualify you for a mortgage refinance loan. But, even if your credit score is below 620, it is still possible to get a mortgage refinance. However, you’ll have to find the the right lender that is willing to accommodate your particular financial situation and credit profile.

Lenders will also take a look at your employment history. Lenders prefer to see a stable employment history where you’ve been in the same line of work or the same job for two or more years. Job hoppers and self-employed individuals will likely have a tougher time getting approved for a mortgage refinance. It is still possible to get a loan, but getting approved often requires more documentation.

Another key factor to qualify for a mortgage is your debt to income ratio. The rule of thumb says your total debt payments shouldn’t exceed 36 percent of your income. However, some lenders can offer a mortgage refinance loan with an even higher debt to income ratio.

When you refinance your home, you usually don’t have to make a down payment since you may already have equity in your home. If your equity exceeds 20 percent of the value of your home, you should qualify for most mortgage refinance programs. Lower equity percentages will result in either higher rates or the need to find a particular mortgage refinance program that fits your specific situation.

Do You Qualify for a Lower Interest Rate?
Once you figure out if you qualify for a mortgage refinance loan, you’ll need to figure out if you’ll actually save money by refinancing. The most common way to save money on a mortgage refinance is by lowering your interest rate. There are a few ways you may qualify for a lower interest rate than you have on your current mortgage.

You personally could increase your credit score, decrease your loan to value ratio or do a better job of shopping for the best mortgage rates. On the other hand, the current overall mortgage interest rate market is out of your control and changes based on the current economic conditions. If the overall mortgage interest rates have come down since you obtained your last mortgage and your personal situation is still exactly the same or has improved, you could qualify for a lower interest rate.

Run the Numbers to See If You Will Save Money
If you determine you can obtain a lower interest rate, you should still run the numbers to make sure you will save money by refinancing. Unfortunately, refinancing a mortgage often requires paying thousands of dollars in closing costs. Those closing costs make calculating your savings a little more difficult than just comparing your old mortgage payment to your potential new mortgage payment. Additionally, people rarely stay in their homes for the full length of their mortgage so it doesn’t make sense to calculate savings over a full thirty year mortgage. Instead, you can calculate how fast refinancing your mortgage will begin to save you money. Here’s how you can run the numbers for your situation.

First, subtract your new proposed mortgage payment from your old mortgage payment. When doing this, make sure to only include the principal and interest part of your mortgage payment. Do not include the escrow payment. This will give you your monthly savings from refinancing. Next, calculate all the costs to refinance your loan. Include any fees or penalties required to pay off your old mortgage and all closing costs or other fees related to your new mortgage. Finally, take the cost of refinancing number you calculated and divide it by your monthly mortgage savings to calculate the number of months it will take before you start saving money on your mortgage refinance loan. If you plan to stay in your home longer than the time period it would take to start saving money, you should seriously consider refinancing your mortgage.

Shop for the Best Loan for You
If the answer to your question can I refinance my mortgage and save money is yes, then you should start shopping for the best mortgage refinance loan today. When shopping for loans, make sure to compare all aspects of each loan including interest rates, closing costs and terms of the mortgages to find the best loan for your situation. Finding a lender that offers slightly better terms can save you thousands of dollars over the length of the typical 30-year mortgage just for a little work. In fact, you can compare multiple mortgage refinance offers with just one application on