5 Questions To Ask Before Refinancing Your Mortgage
Being able to refinance loans pertaining to your mortgage can provide homeowners with additional breathing room, allowing them to eliminate mortgage debt and balance their personal budget. But there are questions that must before the process of obtaining refinance loans for your mortgage debt can begin in earnest. These are the five most important questions you need to be asking.
1. How Much Equity Do I Have In My Home?
In order to quality for refinance loans and whittle away at mortgage debt, a homeowner will typically need to have established at least a 20 percent level of equity in their residence. Otherwise, they will be asked to pay private mortgage insurance, which adds an unnecessary expense to their personal budget. Those who own more money on their current mortgage than their house is worth can still obtain refinance loans, but they face a much steeper climb.
2. Is My Credit Score Good Enough?
Reducing the strain that your mortgage payments place on your personal budget is a major advantage when it comes to refinance loans. However, qualifying for a favorable rate has everything to do with the status of your credit score. If you do not have a good credit score, qualifying for any mortgage related loans at all will be a major challenge. The best rates will go to those who have credit scores of 720 or more.
3. What Is My Goal?
Some refinance their mortgage to save money on monthly payments and decrease the strain on their personal budget. Meanwhile, other applicants seek a higher monthly payment, so that they can pay off their mortgage more rapidly. Knowing which category you fall into will allow you to make the most informed decision possible.
4. What Are My Current Loan Terms?
Some homeowners apply for mortgage refinancing loans because their current loan agreement is interest only or an adjustable rate mortgage. Those who fall into these two categories should apply for a fixed rate loan. Unless you plan on moving from your current home within the next year, this is your best bet for lowering your monthly payments.
5. How Many Additional Mortgages and Lines of Credit Do I Have?
If you have more than one mortgage and you have obtained multiple lines of credit, the process of refinancing your mortgage is going to be far more difficult than it will be for those who have not taken out a second mortgage.
Borrowers have the option of either paying off their additional loans or combining them with their existing mortgage. Unless this plan is agreed to, a refinancing lender is left in the secondary position behind the initial loan provider, a role that they may not be willing to play.