Conversely, a refinance that removes your PMI would save you money and could be worth it for that reason alone. If your home has 20% or more equity, you don`t have to pay PMI unless you have an FHA mortgage or are considered a high-risk borrower. If you are currently paying PMI, have at least 20% equity, and your current lender does not remove the PMI, you should refinance. But that`s not the only factor you should consider. We`ll cover the pros and cons of the 1% rule of thumb for refinancing, provide some examples, and explain another mortgage rule of thumb to help you evaluate your options. Keep in mind that calculators aren`t perfect and you may need to weigh the actual cost of refinancing separately. But what if the loan amount was only $100,000? The game changes rapidly. Your mortgage payment would increase from $477.42 to $421.60. If the cost of refinancing can pay for itself within a reasonable time, it can make financial sense, depending on your goals. These could include: What to consider: In addition to comparing interest rates, pay attention to different loan fees and whether they are due in advance or included in your new mortgage.
Lenders sometimes offer refinance with no closing costs, but charge a higher interest rate or increase the loan balance to compensate. For a 30-year fixed-rate mortgage on a $100,000 home, refinancing from 9% to 5.5% can cut the 15-year term in half with only a small change in the monthly payment from $805 to $817. However, if you`ve been at 5.5% ($568) for 30 years, a 3.5% mortgage for 15 years would increase your payment to $715. So do the math and see what works. Also consider your current loan type in relation to what you want to refinance. Several times a month, we provide potential customers with the need to refinance a 15-year mortgage by explaining that they can do it for FREE and save the time needed to refinance. However, the refund will not unlock a lower rate – but again, a lower rate is not always available. In times of declining home values, many homes are valued much cheaper than in the past. If this is the case when you`re considering refinancing, the low valuation of your home may mean you no longer have enough equity to make a 20% down payment on the new mortgage.
Don`t be intimidated by the idea of mortgage refinancing. You should always have a clear goal when it comes to refinancing. While a 1% rate cut is a good rule of thumb, if you`re considering mortgage refinancing to lower your interest rate, it`s always best to evaluate it individually. For more information on mortgage refinancing, visit the Spirit Financial Credit Union website. From there, you can view prices and details, make an appointment at the branch, zoom in on a video conference, or call a loan officer. Please feel free to contact us today to discuss whether refinancing is right for you. In addition to the interest rate and the years you plan to spend in your existing home, you also need to consider changes in your financial health. Is your credit score better or worse? Has your income increased or decreased? How much equity do you have in your home? These factors all play a role in determining whether or not you qualify for mortgage refinancing. Your credit union loan officer can help you better determine if this is the right financial decision for you.
If you`re planning to sell your home in the short term, it probably wouldn`t make sense to spend money on refinancing. If we don`t know the answer to all these questions, we can`t just establish a general rule that everyone should follow. Again, don`t cut corners, otherwise you could be in a worse financial situation. What works for one person may not work for another, and if you rely on some sort of shortcut to make a decision, you could fail on yourself. Keep copies of your closing documents in a safe place and set up automatic payments to make sure you stay up to date on your mortgage. Some banks will also give you a lower price when you sign up for Autopay. What to note: Your lender or manager may resell your loan immediately after completion or years later on the secondary market. This means you owe mortgage payments to another company, so keep an eye out for emails notifying you of such changes.
However, the terms themselves should not change. What to note: You pay a few hundred dollars for the evaluation. Informing the lender or appraiser of any major improvements, additions or repairs you have made since buying your home could result in a higher appraisal. Christopher and André owe $120,000 for a mortgage on a $200,000 home. That means they have 40% or $80,000 in equity. With a refinancing installment, they could refinance themselves for more than the $120,000 they owe. For example, they could refinance for $150,000. This would allow them to repay the $120,000 for the current loan and have $30,000 in cash to pay for DIY and other costs.
That would leave them with $50,000 or 25% equity. Collect current pay stubs, federal tax returns, bank/broker statements, and anything else your mortgage lender requests. Your lender will also review your credit score and net worth, i.e. disclose all your assets and liabilities in advance. There are also homeowners who simply want to make payments easier, even if it means paying more interest in the long run. Whether it`s cheap or not really depends on a number of factors, such as the loan amount, closing costs, and the expected tenure of the home. For example, lower monthly payments can mean that the mortgage term is actually much longer, saving you money on your monthly payment, but costing you much more in the long run.