When you refinance your mortgage, you are essentially taking out a new loan to pay off your old one. This strategy can be a great way to save money on interest rates, get a lower monthly payment, or consolidate your debt. However, there are some things you should know before you refinance.
This post discusses two important factors that could impact your decision to refinance.
Your Home Equity
When you want to proceed with mortgage refinancing, one key factor to take into account is your home equity. Home equity is the part of your home's value that you outrightly own—the market value of your home minus any outstanding mortgage debt. For example, if your home is worth $200,000 and you still owe $100,000 on your mortgage, then your home equity is $100,000.
Your home equity will impact your mortgage refinancing decision in a few different ways. First, the more equity you have, the easier it will be to refinance your mortgage. Lenders are always looking for collateral, and your home equity serves as excellent collateral. The more equity you have, the more likely you will be approved for a refinanced mortgage.
Secondly, the amount of equity you have will also affect the interest rate you'll be offered on your refinanced mortgage. The more equity you have, the lower your interest rate will be. Lenders see borrowers with a lot of equity as low-risk borrowers—after all, if you default on your loan, the lender can simply sell your home to recoup their losses.
So if you're looking to get the best possible interest rate on your refinanced mortgage, make sure you have a good amount of home equity.
Your Credit Score
Your credit score is one of the most important factors that lenders consider when you apply for a mortgage. A credit score is a number that represents your creditworthiness—in other words, it's a measure of how likely you are to default on your loan.
A high credit score indicates to lenders that you're a low-risk borrower, which means that you're more likely to repay your loan on time. On the other hand, a low credit score can make it difficult to qualify for a loan or get a favorable interest rate.
To put it simply, you might be in a good position to get a lower interest rate on your refinanced mortgage if you have a good credit score. But if you have a poor score, you may still be able to get approved for a refinance, but it will likely come with a higher interest rate.
If you want to refinance your mortgage, check your credit score and take steps to improve it before you apply. A higher credit score saves you more money over the life of your loan. Once you know your score, you can start shopping around for the best possible interest rate on your refinanced mortgage.
To learn more, talk to a home refinance loan service near you today.Share