Refinancing: What to Know About Your House Before you Start

refinancing-mortgageRefinancing applications are topping all other home loan options today. Mortgage interest rates continue to drop, and they’re expected to remain at their present level for the balance of the year. If you haven’t refinanced, now is the perfect time. You can save a lot of money and give yourself some extra financial stability if you know how to negotiate a better deal. Here are a few things to keep in mind if you’re going to refinance your current mortgage loan.

Home Equity

You need to have equity in your home in order to refinance. Home values across the country have decreased significantly the past few years. Many American’s have been left underwater with homes that are worth less than they owe on them. Other homeowners might have only a small percentage of equity. Talk to a professional to get a good idea of what yours might be worth in the current market. Most private lenders won’t refinance a home with little or no equity. If you have 15 percent equity or above, you shouldn’t have a particularly difficult time refinancing your current mortgage.

Rolling Costs In

Refinancing a mortgage will probably cost somewhere between three to five percent of the loan amount. Although not a pleasant cost to bear, its impact can be lessened. With sufficient equity, you can roll or pack those costs into the new loan. One good loan product is the no cost refinancing mortgage. Rather than rolling the costs into the principal amount, the borrower will pay a slightly higher interest rate with no costs. Of course, that slightly higher interest rate might become irrelevant if it’s significantly less than you’re paying now. You’ll also want to think about the total cost of a new loan compared to an existing loan. If you’re thinking of taking out a new one to help with the costs, you need to have the lowest interest possible before you see if refinancing will make sense for your situation.

Build Your Credit Score

Having a stronger credit score when submitting a refinancing application increases the likelihood of the new loan being approved. It also shifts the interest rate and costs in your favor. Finance organizations such as can help reduce interest rates on your credit card debt. Then over time, once you’ve paid off your debts, this improved debt-to-credit ratio can then help strengthen your credit score to higher numbers. That in turn permits you to also reduce debt on your home by making favorable refinancing terms for you more available. Improving your credit score can be done in a short time when you know where to start.

If you’re going to keep your new mortgage for a while, you should break even on your refinance within three years. On a true no cost refinance, you can break even immediately. Calculate your home equity, determine whether you want costs, and then reduce your debt. You can then save even more by refinancing your home.

Erin Emanuel