Do I Want to Refinance My Mortgage?
You can save money when interest rates fall. In refinancing, you simply take a new mortgage at current interest rates to pay off your mortgage. This cuts the total price of your mortgage and usually lowers your monthly obligations. The same as your original mortgage, your lender wants you to have equity in your home — worth above that which you owe on the mortgage.
Significance
Equity matters to lenders, the Lending Tree website states, because to acquire equity you have to put your own money into a property. If you have $50,000 in equity in a $300,000 house, for example, that is a $50,000 investment you’ll lose if your lender forecloses. That gives you a big incentive to keep up with the mortgage instead of lose your investment.
Percentages
The guideline for mortgages and refinances, based on”USA Today,” is that you should have at least 20 percent equity in your property. For those who have less equity in this, you’re still able to find lenders that will refinance your mortgage, provided your credit is outstanding, but you are going to have to pay a higher interest rate. Your lender may also require you to take out mortgage insurance.
Size
Sometimes owners who have been paying their mortgage faithfully end up with no equity because their house’s value has shrunk to less than they owe on the mortgage. To be able to pay off the old mortgage, a lender would have to refinance for more than the house is worth. One possible way around this is to earn a large sufficient payment on the mortgage that you recover equity and be eligible for refinancing.
Assist
The Federal Housing Administration will insure home loans and refinances for qualified borrowers. If you may be eligible for an FHA refinancing, then you may need as little as 5% equity, because your lender knows that in the event that you default, the FHA will pay for its losses. Another source of government help is your Home Affordable Refinance Program: Even if your mortgage is as high as 125% of your home’s worth, the authorities will offer your lender financial incentives to refinance.
Considerations
Lending Tree states, one option available if you have sufficient equity is your refinance. In case you’ve got a $300,000 mortgage on a $500,000 home, for instance, you could refinance to a $400,000 mortgage and have 20 percent equity; the $100,000 preceding your old mortgage could be utilized to consolidate debts or for any other purpose you choose.