The mortgage industry is looking good. Rates are low and homeowners have a great opportunity to refinance their loans. In fact, if you own a home and you have a hefty mortgage on your home, you should consider refinancing your mortgage at this time. However, since you are doing this for the first time, you can make mistakes and they may turn out to be expensive mistakes. So before you set out to refinance your home, here are a few things you should know.
Refinancing Tips # 1- Understand just how much equity you have in your home.
As you already have a mortgage, you might have already paid off a part of the loan. This makes you an owner of a small part of the home and it is called equity or your share in the home. Before you consider a refinance, you should consider just how much equity you have in your home. If you have already paid off the principal and are on the road to owning your home, don’t be lured by refinancing. Stick to the original loan and pay it off as quickly as possible. Refinancing is good but it will increase the term of your loan and you will be stuck with more payments over more years.
Refinancing Tips # 2 – Understand the value of your home
Home rates have fallen. If your home value was $900,000 ten years ago, there is no guarantee that the value of the home is the same. Moreover, home rates have lowered by 25% since the recession and they are expected to fall even more. If you don’t own enough of your home, you are not likely to receive a good refinancing offer.
Refinancing Tips # 3 — Be prepared.
Before you even set out to refinance your loan, you have to know everything possible about the refinancing process. Read up on the current interest rates, compare deals, get in touch with people who have already refinanced their loans, go online to consumer forums, find mentors or experts who will help you with free advice, and so on. Find out as much as possible about your own loan as well. Being prepared is the best way to be ready for the refinancing process and the best way to get a good deal.
Refinancing Tips # 4 — Understand loan ratios
There is one important ratio that has to be understood regarding refinancing. The first ratio is the Loan-to-value ratio (LTV). This ratio is a percentage that compares the loan amount to your home’s current market value. For example, if your home is valued at $100,000 and you want to borrow $80,000; the appraiser will divide $80,000 by $100,000 to get a LTV of 80%. This ratio influences your mortgage rate. For example, if the LTC is high, you may have to get additional insurance to protect the lender in case you default on your loan. Your best option would be to bring down this value. You can do this by paying off a large part of your mortgage or choosing government loans.
We hope that these few tips have helped you understand how the refinance process works. Don’t stay with the same lender if you are not happy with the loan rates. Make sure you shop around to get the best deals on your home mortgage. If you do your research process properly, you can easily find an affordable loan that will be paid off quickly and efficiently.
Leave a Reply