The interest rates are pretty low right now. As such, you might be wondering: should I refinance my home mortgage?
Maybe you should and maybe you shouldn’t. The only way to know for sure is to do your due diligence and determine whether your situation is appropriate for a refinance.
Need help doing so? Then read on. Here’s everything you need to know about refinancing a house in Dallas, Texas.
What Can Refinancing Do for You?
Refinancing opens up a number of different avenues for you, some of which might be beneficial. Let’s look at some benefits of refinancing!
Get You a Lower Monthly Payment
Want to pay less on your mortgage every month? Refinancing can help you to do so. The key is to obtain an interest rate that’s lower than what yours is currently.
Allow You to Change Your Loan Type
Maybe you’re currently locked into a 15-year loan but would rather switch to a 30-year? Perhaps you currently have a fixed-rate loan but would rather switch to an adjusted-rate? If so, refinancing can help you.
You can refinance at opportune times as a means of taking advantage of a different type of loan.
Help You to Ditch Private Mortgage Insurance
When you have a conventional loan, you generally only have to pay private mortgage insurance until you’ve hit 20% equity in your house. However, if you have an FHA or USDA loan, you will generally have to pay private mortgage insurance for the duration of the loan. That’s a lot of money down the drain.
As such, it might be wise to refinance from an FHA or USDA loan so that you can instead have a conventional loan. You’ll no longer have to pay private mortgage insurance, thus saving you hundreds of dollars monthly.
Facilitate in Consolidating Debt
Have high-interest debt that you’re trying to pay off? If so, you might be happy to hear that you can roll it into a refinanced mortgage, allowing you to pay off that debt at a much lower interest rate.
Factors to Consider When Thinking About Refinancing a Home
When thinking about refinancing a home, there are a number of factors you need to consider. The most important of these factors include the following.
The Difference in Interest Rate
The most important thing to consider is the difference between your current interest rate and the interest rate that you could have. This difference is going to have to be fairly sizeable in order to justify a change. Otherwise, you could actually end up paying more than you would have if you had just stuck with your original loan.
If you have a 4% interest rate and can get it down to 3%, refinancing might be worthwhile. If you have a 4% interest rate but can only get it down to 3.75%, it might not be worth your time or money.
A good rule of thumb is that you shouldn’t even consider refinancing unless your interest rate has the potential to drop by 0.75% or more.
Your Current Home Equity
Another thing you’ll want to consider is your current home equity. Generally speaking, you can’t refinance unless you have 20% equity in your home.
Your Credit Score
Just as your credit score mattered when you obtained your original mortgage, it will also matter when you refinance your mortgage. So, if your credit score has gone up, you’ll have a chance at a lower interest rate. But if your credit score has gone down, you might have trouble finding an interest rate that is substantially lower than the one you have right now, regardless of your other circumstances.
Debt to Income Ratio
Your debt to income ratio will have an effect as well. If you have more debt than you did when you purchased your home, you might have a difficult time obtaining a lower interest rate. The same goes for if your annual income has reduced.
Conversely, if your debt and/or income situation has improved, you stand to get a much better interest rate.
Just like when you originally financed your home, when you refinance your home, you will have to pay closing costs. These costs will generally be in the thousands, ranging between $2,000 and $8,000. If they’re too high, they can cancel out any benefit that you would receive from obtaining a lower interest rate.
The only way you can know your specific closing costs is to ask the lender. Different lenders will levy different costs from one another.
The Amount of Time You’ll Live in the House
The amount of time you plan on living in the house after the refinance is an important thing to think about as well. If you’re only going to live there for less than 5 years, a refinance might actually lose you money. But if you plan on keeping the home into ripe old age, a refinance can make a huge difference in the amount you end up spending.
It’s all about how much you have to pay in closing costs. For instance, let’s say you have to pay $5,000 in closing costs. If so, your reduced monthly payments would have to save you $5,000 before they start to become advantageous.
This will likely take at least a few years. Do the math and see whether it will benefit you or not.
You might also have prepayment penalties to worry about. These are sometimes included in mortgages, and specify that, if you refinance within a certain number of years, you’ll have to pay a set fee. This fee will likely be a few thousand dollars and could impact the benefit of refinancing.
I Want to Refinance My Home in Dallas, Texas!
If you find yourself thinking “I want to refinance my home,” and if you’re located in Dallas, Texas, we here at Supreme Lending are the people to see.
We’ve helped refinance mortgages for countless homeowners. With our help, you can reap the benefits of a lower monthly payment.
Contact us today to get the process started!