Thoughts for Homeowners: How to Know If You Should Re-Finance
Saturday, December 23, 2017, 6:00 PM | Leave Comment
Refinancing your home can be a good way to save money on your mortgage. It is not, however, something you should do without considering a few major points.
Refinancing can work, but only when the numbers line up.
Consider the actions below to find out if refinancing will work for you.
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Look at Interest Rates
The major reason to refinance your mortgage is to get a lower interest rate than what you are paying right now. With that said, you actually need to see a fairly decent drop in interest rates to see any kind of significant savings.
The general rule of thumb is that refinancing is really only worthwhile if your new rate is at least .75 percent lower than your original rate.
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Consider the Cost
There is usually a cost associated with refinancing your home. The cost of refinancing is usually quite small compared to what you might save in the long run, but those savings won’t help you in the near future.
If you know that you have other major purchases to make soon, it may not be a smart idea to refinance today. You might be able to sidestep these issues by seeking out lenders from a bank like State Bank of Cross Plains who offer discounts on refinancing, though.
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Check Your Credit
Your credit will play a huge role in your refinancing rate. If you bought your home when you had great credit and your score has dropped, there’s a good chance that your refinanced rate will actually be higher than what you have now.
If you are currently working on your credit, you may want to wait until you hit a certain credit threshold to refinance. Generally speaking, the higher your score, the better your rate will be.
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Think about Equity
Finally, you’ll want to take a look at the equity in your home. Generally, you’ll need to have around twenty percent equity in your home to avoid having to pay any kind of private mortgage insurance.
If you have less equity than that in your home, the cost of insurance may negate most—or even all—of the savings you get from refinancing to a lower rate.
Refinancing works when you can get a better interest rate and you have the right amount of equity in your home. Getting there requires paying fees, of course, and requires that you have good credit.
Do your research, but always remember to talk to a professional to find out the real costs of refinancing your home.
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Meghan Belnap is a freelance writer who enjoys spending time with her family. She also enjoys being in the outdoors and exploring new opportunities whenever they arise. Meghan also enjoys researching new topics that help to expand her horizons. You can often find her buried in a good book or out looking for an adventure. You can connect with her on Facebook and Twitter.
