Mortgage refinance always sounds “good.” The point of it is to take the current loan and how much you’ve paid it down and opt for a different loan option. The result usually is you get a lower mortgage payment. Usually.
However, Ask Yourself These Three Questions First When Determining If a Mortgage Refinance Is the Best Way to Go
First Question You Need to Ask Yourself: ARE YOU MOVING?
If the answer’s yes, mortgage refinance will pay off big time. But why?
For starters, you might have debt to pay off if you want to qualify for the house you’re moving into. Mortgage refinancing allows you to pay off that debt, which will raise your credit score – and you reap the benefits of a cash flow savings that’ll prep you for the big move. An unusually clever way of using mortgage refinance to pave the way.
However…. Moving in the next two years presents a problem if you’re not considering a home loan with no closing costs. That’s a hefty $1,500 out of your pocket just to move into that next home. Consider that. And don’t worry about the interest rate being a bit higher for that no-closing-cost home 
loan as you’re only keeping it for such a short period of time. Ultimately you’re coming out way ahead of the game.
Second Question: HOW MUCH DEBT DO YOU CURRENTLY HAVE?
Surprising, right? You never thought you’d have to ask this question again since you’re only refinancing for a loan you already got approved for. The fact is this: you STILL need to check your debts. You’re technically applying for a “new loan” (sort of), so keeping in mind your debt-to-income ratio is still crucial.
In other words, if the ratio’s too high, chances are good you won’t even be approved. So check first. Luckily some programs out there are way more lenient than others:
- FHA does a 31/43 ratio, and even a back-end of up to 50% depending on the situation.
- VA does just one single back-end of 41%.
- The USDA does even better with 21/41.
- And Fannie Mae kills it with 28/36 and even a back-end of up to 45% or 50%.
Don’t stress too much, though. There are ways to go around the whole debt issue. If your debt is a problem, consider streamline refinancing, which exists through the FHA. Simply refinance to a lower rate through their “streamline program,” and since you had already qualified in the first place, you don’t need any income verification or debt-to-income ratio paperwork at all. The VA offers that same option, too.
And Thirdly – WHAT’S YOUR CURRENT TERM AND IS IT WORTH IT?
Arguably the most important question to ask, and here’s why – you can cut off five years from your $200K home loan and only pay $100 more. That’s a remarkable $60,000 in savings! You can VIEW THE OPTIONS FOR 25-YEAR HOME LOANS RIGHT HERE.
But what about 20-year loans? Would that be better? Very possibly. Take the same original term amount of $200K, and you’ll see that your payment will only increase by just $86 a month. In comparison, that might benefit you even more in the long term, so CHECK OUT THE OPTIONS FOR 20-YEAR HOME LOANS HERE.
Bear in Mind That This Means You Have Options and Not Simply “Choices”
After all, if you’re moving, you’ll want a lower monthly payment. But if you want to save, consider a shorter term. As always, look at your debt and see if it’s in your best interest. It may or may not be. Ultimately it’s your property. Your money. The good news is right here we have the goods and the knowledge on educating you on what you need to do with all of it that’ll benefit your future!
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