1. Home Equity

One point to consider for a refinance is the equity in your home.  Equity is the difference between the home’s fair market value and the remaining balance of the mortgage.

According to the chief economist of Freddie Mac, present home values have been on the rise.  This is very good news for homeowners. However, that’s not the case for everyone, some people have little or no equity in their home.  Government programs exist for these types of borrowers who are unable to refinance with conventional lenders.

As a result, if you have at least 20% equity in your home it will be easier to qualify for a new loan.  We will help you determine which programs for which you could qualify. This is done by checking with different lenders and discussing your individual needs.

2.  Credit Score

Firstly, the higher your credit score, the lower the interest rate a lender will offer you. If you have a lower credit score, you may still be able to qualify for a loan, but you’ll probably have to settle for a higher interest rate or more expensive fees. This is the way lenders compensate for higher risk deals.

3.  Lenders also consider your debt-to-income ratio. Having a high income, stable employment and payment history, along with significant savings contribute to a strong financial profile. However, lenders want to be sure that your monthly expenses will be covered comfortably.

Therefore, the norm is keeping the monthly housing payments under a maximum of 28% of your gross monthly income. Your overall debt-to-income ratio should be 36% or less. However, with other strengths in your favor, some lenders even go up to 43 percent. We will confirm all the current set parameters with you as they change at times.

If you don’t meet these debt-to-income ratio requirements, you may need to pay off some debt before you can qualify for a refinance. Absolutely, we will be sure to provide many options, there is always a way to achieve your home purchase.

4.  Costs of Refinancing

The cost to refinance is usually 3-5% of the loan amount.  Nonetheless, we can help you find ways to reduce this cost or roll it into the loan.  Our mortgage specialists will shop around with different lenders. They will also negotiate on your behalf to find reduced or no refinance fees.  If you have enough equity, refinance costs can be rolled into the loan by increasing the principal. Undoubtedly, there are creative ways to cover upfront expenses.

5.  Rates vs. Term

The term of the loan is as important as the interest rates.  It all depends on what you’re trying to accomplish. First, we need to establish your financial goals and needs.

These are a few examples:

If your goal is to pay off your mortgage the quickest way, you’ll want the shortest term, but with a comfortable monthly payment.

If you need to reduce your monthly payment as much as possible, you will need a loan with the lowest interest rate for the longest term.

If you want to pay less interest over the life of the loan, then you’ll need the lowest interest rate available with the shortest term.

In conclusion, it is important to consider both the interest rates and length of the loan.  This will give you the results you are looking to achieve. We’ll be sure to take you through different scenarios so that you fully understand what to expect and how to get to where you want to be.  Definitely, each case is completely different. We will uncover what makes the most sense for your situation.

6.  Points

When considering interest rates, you’ll have to understand that points are directly related.  Indeed, mortgage points are also called discount points. These are fees paid to the lender in exchange for a lower interest rate.  They can be paid at closing or added to the principal of your new loan.

You can essentially “buy down the interest rate” by paying points upfront and have a lower monthly mortgage payment over the life of the loan.  One point costs 1% of the loan amount. However, you can also see it as paying $1,000 in fees for every $100,000 borrowed.

When it comes to points, not all lenders work the same.  Consider these factors:

• The reduction on interest rates varies according to the lender and the marketplace.
• You may receive a tax benefit from buying points.  Our tax knowledge will help you consider your tax benefits.
• Points for adjustable-rate mortgages (ARMs) reduce the interest rates only during the initial fixed period.
• If you’re choosing between buying points or making a 20% down payment, we will run the numbers and show you how that can affect your private mortgage insurance expense.

You also have to consider the cash you have available to cover upfront costs.  These expenses include the fees for points, the down payment, closing fees, and reserves.  Take into account the time you plan to stay at the home, if long-term, it makes sense for you to pay points to reduce your interest rate.

After calculations we will give you an exact idea of how much you can expect to pay and your long-term financial benefits.  This brings us to our next consideration, the break-even point.

7.  Break-even Point

It’s crucial for you to understand an important calculation in the decision to refinance, the break-even point.  We will make sure you clearly understand the benefits versus the costs.

The break-even point indicates how long it takes to recoup the costs of buying points. To calculate this, you’ll divide the cost of the points by how much you will save on your monthly payment.

Buying points makes sense if you plan to own your home after the break-even period and you choose a fixed-rate mortgage.

8.  Private Mortgage Insurance (PMI)

You’ll be required to pay PMI if you have less than 20% of equity at the time you refinance. If private mortgage insurance is something you haven’t needed to pay in the past, you’ll have to consider this new expense.  You will have to determine if the reduced monthly mortgage payments will be enough to offset the additional cost of PMI.