Most people can’t afford to pay cash for their home. Properties are an expensive acquisition, so unless you are an A-Lister or Walter White, you probably don’t have hundreds of thousands of dollars lying around in your bank or closet. Sadly, this means you have no choice but to go cap in hand to a lender and persuade them to give you a mortgage.
It’s not always easy to secure mortgage finance. Since the global economic recession, lenders have much tougher lending policies. They no longer hand over cash to people with bad credit or no collateral, and if they do, they charge a lot more for the privilege. Not surprisingly, many people elect to stick with their lender once they have mortgage finance in place. After all, it’s hard work going through a home finance application process, so why would you want to do it all again?
Nevertheless, sticking with the same lender for 25 years or more is not always sensible. Home refinancing isn’t always the right move, as any decision to apply for a new mortgage deal is dependent on interest rates, your home equity, and your current credit score, but with interest rates at rock bottom right now, refinancing an existing home mortgage might save you money. To help you make a decision, here are some salient points to consider.
What’s Your Credit Score?
A good credit score is critical. Lenders use a credit score to help them decide whether (or not) you are a good proposition. Before you think about applying for home refinance rates in NJ, check your credit score. You can do this for free once per year. Apply for your free credit report from Equifax, Experian, and TransUnion online or over the telephone. Once you have your report, check every entry to make sure there are no mistakes. Hopefully, your score hasn’t slipped, but if for any reason it has, now is not a good time to apply for credit of any type, as it will cost you more. Instead, look at ways to repair your credit score.
Is it Cost Effective to Refinance a Home Loan?
Interest rates are very low at the moment, so you could save a lot of money by switching to a cheaper home mortgage deal. Many people are stuck on high fixed rate deals that are 5-6% higher than the current variable rate. These worked out well when interest rates were high, but now your mortgage payment could be a huge drain on your monthly outgoings. Look at your current deal. Are you locked in for a while longer? Would you have to pay a penalty if you refinanced? Speak to an independent financial advisor and do the math. Even if you have to pay a penalty for switching to a new deal, it might still be cheaper to refinance.
Do You Need Extra Cash?
Refinancing a mortgage loan is an affordable way to pay for big-ticket purchases such as a luxury holiday or major home renovation projects. For homeowners with substantial equity in a property, refinancing to release some of the cash is a smart move. Switch to a cheaper deal, pay less interest, and use the cash to fund anything you want.
Have You Changed Jobs Recently?
Your current personal circumstances will significantly affect whether a lender considers you suitable for a new refinancing deal. Aside from credit score, your job is also important. For example, if you are now self-employed, most lenders will require at least three years’ worth of accounts. You may also find it harder to find a sympathetic lender if you have recently switched jobs.
How Long Are You Staying Put?
The cost of refinancing is sometimes rather high. Lenders charge fees for their products, you may have to pay for an appraisal on your home, and then there are the underwriting costs. It all adds up. If you are planning to move home within a couple of years, ask yourself whether it’s worth spending this money. It will take 2-3 years to recoup the costs of taking out a new home mortgage, so don’t bother refinancing unless you are staying put for a while longer.
What’s Your Loan Balance?
If there are not many years left on the payment schedule, it might not be worth switching to a new deal. In the final few years of a mortgage, most of your money is being used to repay the loan capital, so you won’t save much by refinancing.