If you’re considering to refinance a home you own, it may be a good idea to analyze if it’s for the right reasons.
Many homeowners want to change their mortgage payment plan but are hesitant to take the step because, well, it’s a big step. Do you want to make sure your reasons are valid? Keep reading!
Four valid reasons to refinance a home
You may have one of the valid reasons to refinance a home, so before calling your lender to apply for refinancing, check them out:
#1- To get lower interest rates
Many homeowners decide to refinance a home because it could help lower the interest rates. However, predicting whether rates will go up or down is a tricky business, you should better decide based on the current interest rate.
You can also get a lower interest rate if your credit score has improved since your loan was approved. According to myFICO, the current mortgage rates can vary up to 1.5 percent depending on your credit score. To be able to qualify for the most convenient rates, you need to have at least a 760 FICO score.
#2- To have lower monthly payments
When you’re going through a financial crisis, you may need to reduce monthly expenses and that usually includes the mortgage payment. Of course this means you’ll remain indebted to the lender for more time than you had expected and, if you do the math, that probably means that you’ll end up paying up a larger amount of money due to interest rates.
#3- To change to a fixed rate mortgage
Are you paying an adjustable rate mortgage? If you had firstly decided on this rate because you thought it would decrease but later on discovered it wasn’t going to happen any time soon, it may be a good idea to refinance a home with a fixed rate plan. Take into consideration that the 30-year fixed rate is currently between 4 and 4.5 percent.
#4- To shorten the term of your loan
When you strike a good job position and your income is stable enough, you may want to shorten the term of your loan. Your monthly payments will be higher, but the weight of debt will be lifted off your shoulders sonner. To make sure you’re able to afford the new monthly payments, enter your information into a mortgage calculator.
| Remember that your monthly payments shouldn’t take up more than 30 percent of your income. |
A word of advice
Keep in mind that refinance will have a negative impact on your credit score, so make sure you’ll stick to it and won’t need refinance once again. In addition, take time to figure out if you actually qualify to refinance a home. If that’s not the case, wait until your credit score improves. You should be able to find the requirements in the bank’s website.
So, have you got a valid reason to ask for refinancing your home? When in doubt, consider calling your accountant for some advice.