Things to Check Before You Refinance Your Mortgage

Refinancing a mortgage has many benefits and can help you get your finances back on track. While a low-interest rate could be financially tempting, there are several other factors you need to check to ensure you’re not making an expensive mistake. Read on for our list of what you should keep in mind before signing up for a mortgage refinance plan.

Understand Your Home’s Equity

Your equity is something that lenders use as a qualifying factor when offering refinance. The value of your home can increase or fall due to changes in the economy, and lenders generally won’t offer to refinance homeowners with low equity. Discussing your needs with lenders can give you a better understanding of whether you qualify for refinancing.

Know Your Credit Score

Like most financial offerings, your credit score is an essential factor that lenders look at while considering your loan application. In the last few years, lenders have become more stringent while approving loans. While your good credit history could help you qualify for refinancing, you may not get the lowest interest rates if your score is below 760.

Keep a Low Debt-To-Income Ratio

In order to safeguard their loans, lenders place a lot of importance on a borrower’s debt-to-income ratio. This ratio is a representation of your debt as compared to your monthly income. Generally, lenders are more likely to offer refinance loans to those with a favorable ratio of 36% or less. Reducing your debt before applying for refinancing could help you increase your odds of approval.

Reduce Your Costs

There are several costs and fees involved in refinancing a home, and these typically amount to approximately 5% of the loan amount. Researching and comparing lenders and loan features can help you reduce these overall costs, even if it means paying a slightly increased interest rate. When it comes to refinancing, don’t be afraid to negotiate for the best terms.

Check Your Taxes

Several homeowners take advantage of deductions on mortgage interest payments and tend to pay less federal income tax. It’s important to note that while refinancing could offer lower interest rates, it also lowers your tax deductions.