Low mortgage interest rates allow homeowners to restructure their finances, but you should always make mortgage refinancing decisions based on your financial circumstances. To get a better understanding of mortgage refinancing, there are a few things you need to consider.
First of all, you need to review how much equity value your home holds. This is because if your home’s worth is less than what it was when you first started the mortgage, it’s best that you don’t refinance the mortgage. Also, this phenomenon is known as negative equity. Recently, the home equity value has been increasing for the majority of homeowners, and if your home’s equity value is less, it’s time to reconsider the mortgage.
Over the course of time, lenders have implemented strict loan approval standards. For this reason, people with decent credit aren’t eligible for low-interest rates. Generally, lenders will need a credit score of over 760 or higher to be eligible for the low-interest rates. On the other hand, borrowers who have low scores might be able to get a loan, but they will need to pay a higher fee or interest rates.
If you are already qualified for a mortgage loan, it’s common to think that getting a new loan will be easy. However, lenders have raised the standards for credit scores, and they are extremely particular about the debt-to-income ratio. According to experts, the monthly housing costs should be a maximum of 28% of the total monthly income. In addition, having a high income, sufficient savings, and a stable job can also improve the debt-to-income ratio. However, if you are still uncertain, you can hire Brisbane mortgage brokers to help you maintain a DTI ratio of less than 36%.
The costs of refinancing are around 3% to 6% of the gross loan amount, but the borrowers have various choices of reducing the costs. For instance, if you have sufficient equity, you can roll these extra costs into the new loan, and some lenders also have a no-cost refinancing option. For this reason, you need to research and negotiate for reducing the refinancing costs/fee.
The break-even point is defined as a point where the refinancing costs are covered by the monthly savings. Once completed, the borrower can do with the monthly savings as they want. For instance, if the refinancing costs are $3,000 and you are saving around $200 a month over the previous loan, you will have to wait 15 months to recoup the costs. Having said that, it’s best to avoid mortgage refinancing if you intend on selling or moving within the next two years.