Hard-working community members deserve the best possible mortgage interest rates and terms. Homeowners whose financial situation has changed over the years sometimes wonder whether they should refinance their mortgage. Although refinancing may improve your financial health and well-being, it’s a process that should not be taken lightly. Before refinancing your mortgage, thoughtfully consider long-term changes and be sure you fully understand the answers to the following questions.
When Should I Refinance My Mortgage?
Refinancing a mortgage is a relatively straightforward transaction where property owners secure a new home loan and pay off an existing one. As a homeowner who previously qualified for a mortgage and built-up equity, a wide range of loan products are usually available. But before calling CCCU, it’s important to position yourself to receive the best possible interest rate and terms. Consider the following items to maximize your borrowing potential.
- Debt-to-Income Ratio: Debt-to-income ratio compares how much you owe each month on outstanding debts to how much you earn. CCCU enjoys some flexibility and may count residual income to buoy your debt-to-income profile. Many lenders set the bar between 36-41 percent.
- Credit Score: Request a free copy of your credit report from Equifax, Experian, and TransUnion. Review the information, clear up errors, and repair any outstanding issues that will help improve your FICO score.
- Calculate Equity: Learning a home’s equity can be done by determining its fair market value. This figure is usually based on condition, square footage, architectural design, and comparing those elements to similar properties in your immediate area. After arriving at an estimate, deduct what is owed on the property to determine the equity. Lenders help determine your home’s equity by getting your property appraised. Typically, lenders like to see at least 20 percent equity when refinancing.
People generally consider refinancing when interest rates are low, and they see an opportunity to lower monthly payments. Of course, working with a mortgage refinancing professional can help you understand the available options.
Why Should I Refinance My Mortgage?
It’s essential to recognize there is no single reason why someone wants a mortgage refinance. Everyone has unique financial portfolios, goals, and needs. Although there is no simple answer, the following rank among the popular reasons to refinance your mortgage.
- Low-Interest Rates: Homeowners who took out a mortgage in a higher-rate environment may want to take advantage of lower interest rates. Others may not have been able to take advantage of select rates previously. If you are in a position to secure a lower rate now, refinancing could save you a significant amount of money.
- Reduce Monthly Payments: Growing families often feel a strain on monthly budgets. Refinancing can lower monthly installments and free up cash to enhance your quality of life.
- Fixed-Rate Preference: Transitioning from an adjustable-rate mortgage (ARM) to a fixed-rate product ranks among the popular reasons to refinance. This strategy helps people create a more consistent monthly budget and avoid potential increases when rates fluctuate.
- Home Improvements: Applying for a Home Equity Loan or Home Equity Line of Credit (HELOC) are common ways property owners pay for upgrades. Refinancing is an option that does not necessarily result in adding a monthly payment.
- Reduce Loan Term: It’s not uncommon for homeowners with 30-year mortgages to want to shorten the terms. When rates are favorable, and life goals include paying off a house, refinancing is a valuable tool. Rates for 15-year mortgages are substantially lower than 30-year mortgages.
- Debt Consolidation: Although refinancing isn’t widely thought of as a debt consolidation tool, it can prove useful. By pulling out funds to pay off high-interest credit cards and personal loans, homeowners reduce monthly expenses and save money. One perk people may not consider is that debt consolidation can improve your credit score.
Other reasons people refinance include allocating resources to savings accounts, or retirement programs, ridding themselves of mortgage insurance, or extending the repayment period to reduce monthly mortgage installments. Regardless of why you are mulling over refinancing, it’s essential to conduct your own research as well as work with an experienced professional.
How Do I Decide If Refinancing Is Right for Me?
When thinking through a potential mortgage refinance, consider personal timing issues. Ask yourself whether refinancing now furthers your financial goals and lifestyle interests. Consider crunching the numbers by using an online refinance calculator. If the estimates you are seeing look promising, or you require more information, give CCCU a call at 503.963.6666 to speak with a mortgage professional.
Where Should I Refinance My Mortgage?
Credit unions remain a valuable resource for community-minded people. Because CCCU does not need to generate profits to pay wealthy shareholders, the savings can be passed along to members through lower fees and lower mortgage refinance rates. If you are considering refinancing your mortgage, have confidence that CCCU‘s Mortgage Team is here to help you find the best product for your needs.