A Few Important Notes When Refinancing

Refinancing in OregonRefinancing always seems a good move because of the lower monthly payments. It is good to know, however, that it is best to have at least 20% equity in the home to qualify for a new loan. This is to avoid paying private mortgage insurance (PMI), as adding its cost to a new loan could negate the advantage of a refinance.

Little Equity and Refinancing

It is a fact, however, that some homeowners owe more on their loan than the property is worth. The good news is, having little equity does not necessarily mean that they should forget to refinance. Many suggest continuing to apply despite low equity because there are some programs that may accept them. Refinance experts from Primary Residential Mortgage, Inc. note that the best thing to do is go to a lender and know the available options.

Paying the Closing Costs

To get the benefit of a lower rate, homeowners need to close on a new loan and pay for the closing costs. This is true even if they choose a low- or no-cash closing, as the costs are still present and can be paid with a higher interest rate or included in the principal balance. For those who don’t intend to stay in the house longer, the lower payments of refinancing will not cover the closing costs.

Deciding on a New Loan Structure

Using a mortgage calculator can give borrowers an idea of what their payment would be after a refinance. Many choose a shorter-term mortgage with slightly higher monthly payments. This is to lower interest payments and own the property quickly. Restructuring the loan to 15-year or a 10-year mortgage works well for those who have plenty of disposable income.

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The decision to refinance a home loan should not be solely dependent on low-interest rates. While low rates provide the benefit of a low payment, homeowners should not forget other factors. These include the time they intend to keep the house, the closing costs for a new loan, the equity in the home, and whether they want a cash-out refinancing.

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