Refinancing is the process of changing the terms of your mortgage loan to a new one under the same or new lender. This means that the loan agreement, such as the mortgage interest rates, monthly contractual payment (MCP), loan terms, and the maturity date, is changed under a new deal. For the most part, borrowers consider refinancing whenever the real estate market’s mortgage rates are seemingly low.
However, many people have been asking this one question: “Is it good to refinance with a low mortgage rate?” We’ll be answering this crucial question in the following sections and sharing the factors to consider when thinking about refinancing.
1. Your primary reason for refinancing
First, know that people do refinance their mortgage loans for two main reasons, as follows:
- MCP reduction: There are instances when borrowers cannot keep up with their monthly payments. The chances are that they have quit jobs or suffered from underlying medical conditions that have caused them to have unstable finances. When confronted with these types of situations, they look for a better loan to reduce their monthly payments.
- Lower interest rate: As you may or may not be aware, various mortgage rates are being offered in the market, which differs from one lender to another. Whenever you get the chance to see a lower interest rate, you may immediately want to take the plunge. Doing so will help you save on the overall interest you’ll pay on your house in the long run.
- Other reasons: Other reasons may include wanting a shorter loan term (from 30 years to 15 years, for example), being unhappy with your current lender (seeking agreement with another lending institution), and transitioning from government-funded loans to commercial loans (due to financial changes).
2. The duration of your occupancy
It’s important to know that mortgage refinancing only makes sense if you plan to pay off your loan, own the house, and stay there for good. If you are looking to sell your property in the near future, however, it isn’t practical that you take this route. As you may or may not be aware, refinancing can take several months and years to break even and help you save money. As a result, you may end up paying more for the interest, instead of actually saving up.
3. The qualifications and your eligibility
Sure, you may have the right reasons to refinance, and you don’t plan to sell your house. However, are you qualified to do so? Before taking the plunge into refinancing, be sure to check the lender’s qualifications and your eligibility. Several factors to consider include the following:
- Home equity: This refers to the difference between your outstanding principal balance and the market value of your property.
- Your income: Lenders will gauge whether or not you can afford to pay your MCP in the long run until the loan is paid in full.
- Your credit report: Lenders will check your credit history to see if you have been a good payer. Ultimately, your credit score will say so much about your financial status.
Keep in mind that all these factors will determine the approval of your refinanced loan. If you think you fall short on one or some of those, it’s best to take a step back from refinancing so that you do not end up wasting time, effort, and money.
At this point, let us first get back to the main question: is it always right to refinance when the mortgage rates are low? The answer is—not necessarily!
Nevertheless, be sure to consider the following factors—your primary reason for refinancing, the duration of your occupancy, and the qualifications and your eligibility. Think things over by considering these variables before taking the plunge as you don’t want to waste your time and effort in submitting an application and getting rejected.
As a veteran, are you considering a mortgage refinance? Let our loan experts assist you, as we can help you scout for the best mortgage rates in Salt Lake City. Get in touch with us today to see how we can help!