Should I Refinance My Home?

With the decrease in interest rates in the recent months, refinancing your home might be able to save you money or allow you to take money out of your home's equity to take on home improvement projects or make other large purchases. There isn't always a clear cut "yes" or "no" as this always depends on your personal situation.

Why Refinance Your Home?
Before refinancing, it's important to know why people refinance and to understand your intentions for possibly refinancing your home:

• Lower your current interest rate
• Take cash out against your home equity
• Increase the term length of your loan
• Decrease the term length of your loan
• Change the terms of your loan, such as switching from an ARM to a fixed rate loan

Once you figure out your reason for refinancing, you need to carefully evaluate if it is indeed in your best interest. Each homeowner will be eligible for a different program, interest rate and fees, which is why each case is based on its own situation and will differ across the board.

Determining your Eligibility
Because you are re-applying for another loan, there is another loan approval process to go through. When determining your eligibility, you credit score will play a big factor. Knowing your credit score and history will prepare you if you need to clean it up and contact credit bureaus to contest incorrectly reported items.
Your score will not be the only determining factor. Banks will look at the overall loan-to-value ratio (amount of requested loan in relation to the value of your home) and they will figure out your debt-to-income ratio (monthly expenses relative to your gross income).

Shopping for the Mortgage
It's important to understand what goes into the refinance process because once you start looking at different lenders, they all charge different fees and could have different terms. You should be aware that common fees included are:

• Application Fee
• Origination Fee
• Points
• Appraisal Fee
• Inspection Fee
• Closing Fee
• Title Fees

Some lenders may also charge a prepayment penalty fee in their mortgage. Even though you think you won't pay your mortgage off before the term, pre-payment occurs the next time you refinance your home.

Choosing the Lender
Once you choose your lender, you can start the process. After you fill out an application, you will be required to provide the income, asset and employment verification documents that the lender requires. Your loan will go through the underwriting process, and you will be updated throughout the process. When your loan is finally approved, you will go to the closing, just as you did when you bought your home. The difference this time is that there is no seller; you will be the only people at the closing, aside from your mortgage loan officer and the closing agent.

Refinancing your home can be a good decision if you are able to lower your interest rate or decrease the term of your original mortgage. If you wonder, "Will refinancing affect my credit score," you do not have to worry. The act of refinancing does not affect your credit; what does affect it, however, is how you manage your new mortgage. If you make late payments, then it will affect your credit. If you make timely payments, though, your credit will benefit. Take the time to look at the overall picture to determine if you will benefit from refinancing your current mortgage to make the best decision for your situation.

Talking to a qualified mortgage professional about your goals will help you determine what is right for your home. NAC members have access to speak to certified financial advisors that can help in all matters to see what works for you. Join today and speak to an advisor today!