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Is Refinancing the Best Deal?
For people who purchased properties when rates were high any substantial drop
in the interest rates prods them into thinking that refinancing is going to
help reduce their current payments. Not so for all of them. People with second
mortgages, credit problems and other loan responsibilities could actually end
up paying more.
How Do Equity and Credit Enter Into This Equation?
First determine if there is enough equity in your property. Any homeowner who
has borrowed 90 percent of their house's value recently has not had enough time
to substantially pay down the principal, and so the equity, if any, assuredly
amounts to very little. Once closing costs are considered it will become even
more evident that refinancing is probably not the way to go at this time.
Bad credit and the inability to repay a loan are also a big hindrance and can
prevent anyone from refinancing to their advantage. Whether your poor credit
is due to circumstances that were out of your control or not, a lender will
consider you a bad risk. The relationship between your income level and your
debt is also a big factor and cannot be avoided.
Again, anyone who has lost or changed jobs recently or frequently, taken on
too much credit card debt or automobile loans, been late or forfeited on any
credit agreements or taken too much equity out of their home, will not be
allowed to take advantage of reasonable rates. Even if they used to warrant
a triple AAA credit rating, whatever their current debt-to-income ratio is now,
is the only barometer the lender will use to gauge whether or not they get the
rates they are looking for.
Don't Be So Eager to Refinance. Do Your Due Diligence.
Fact is, no matter what your status is, if you currently own a home you can
probably get a lender to make you an offer. BEWARE! If you are now
in the "non-conforming" category of borrowers do not be preyed upon
by lenders. Refinancing may not be advantageous at all.
Do your homework and research and investigate the markets and indexes that affect
home loans and mortgages. Know what private mortgage insurance rates are and
how they apply to your specific proposed situation. Also, consider in depth
what extending the life of a loan means to you personally.
If you cannot put more than 20% down towards your new loan you will have to
get private mortgage insurance and pay the premiums. If you are someone hoping
to combine a first mortgage and a second home equity loan that will have a combined
total, that is higher than your present loan, the PMI payments are inevitable
and could make it prohibitive.
The same goes for anyone who has already been into his or her current loan for
fifteen to twenty years already. The portent of having to extend for another
thirty-years should be a major consideration and one that is not lightly undertaken.
The payments may be reduced but they will go on for a much longer period and
in the end, you will pay handsomely over the years for it.
So, if it doesn't really look like a deal, it isn't. Do not let a short
term gain create a long term deficit or future foreclosure and loss of what
you have already worked for. Stick to your current loan agreement and seek other