Photo: Casey Serin
But if you’re one of those lucky individuals who doesn’t suffer from any of these financial woes, you should definitely try to refinance, reports the Associated Press.
You can save more than a thousand bucks a year, and over time that adds up to a lot.
The key things to consider include the following: (1) your credit score (2) the equity in your home (3) your timing (4) your income and (5) whether you have a little spare cash.
For your credit score, something over 720 will get you the best rates, but you can refinance with anything better than 680. If you don’t hit that bench mark, it’s better to wait because otherwise many times banks charge extra fees, which makes refinancing not worth the effort.
The amount of equity left in your home also makes a big difference. You should have at least 10 per cent, but banks will require up to 20 per cent, depending on where your home is located.
Those living in areas most hard-hit by the real estate crash, like Las Vegas or Orlando, will probably need more equity because home values have dropped up to 60 per cent in those regions.
You might also qualify through federal support like Home Affordable Refinance Program, but you must already have a government-backed mortgage and have not already lost more than 10 per cent of the equity.
Your timing is the third thing to think about when considering a refinance. It’s best suited for those of you who plan to stay in their home for at least the next five years and haven’t refinanced recently.
For people who’ve been paying their mortgage for 15 years or more, it may be unwise to refinance because towards the end of a mortgage is when you start to give back the principal. To make it worth your while, you want to save at least one percentage point on your current rate.
Another word of warning: Some states will penalise you for paying your mortgage off early or refinancing. However, sometimes this can be waived.
When you’re gearing up to go to the bank, make sure you have pay stubs and banks statements in hand to show off your assets and income. Most banks won’t accept you if you have debt that’s more than 45 per cent of your household’s income.
Lastly, you’ll need about a few grand saved up to pay for the appraisal fee, which will be about one per cent of the loan value, and other extras fees the banks throw your way. (Unfortunately, that’s how the game works.)
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