Four Questions to Ask When Considering Refinancing Your Mortgage?

Refinancing your home is a big decision.  There are four main points to consider if you want to refinance your home. These points are; how long is your payback period; how much will your interest rate drop; are you planning on moving within one or two years; will you be able to find a lender to refinance your home.

The payback period is the time necessary to recover your costs of refinancing.  The costs of refinancing can include lawyer fees, appraisal fees and bank fees.  Refinancing and closing costs are different for each state so you will need to research your area to find out what is included in closing costs.  In some situations the refinancing fees may be rolled into the new mortgage.

It is very important to understand how much your interest rate will drop.  Typically you want to have your interest rate drop by at least 2%.  If it is less than 2% the costs to refinance may not justify anything less than a 2% decrease in interest.

If you are planning on moving within one to two years you will not be able to recover your refinancing costs and make a decent return on your investment. So you need to be well aware of what your plans are for housing for the next few years.

When shopping for a lender you will soon find that what they are interested in is the loan-to-value ratio or LTV.  For refinancing purposes, this is the amount of the loan compared to the appraised value of the property. So the lender will only lend if the loan is, for example 90% or less than the appraised value. Each lender has its own loan-to-value threshold. If the loan-to-value ration is more than the lender allows one option may be that you pay all the refinancing costs in cash.

A home refinance can save thousands of dollars in interest if it is done wisely and correctly. Chances are you have family or friends who have refinanced and they may be able to refer you to a lender who can help you answer the above questions, so you can make an informed decision.