When you own a house but have a mortgage, you have the option to refinance the loan whenever you wish. Refinancing is not free, though, so it is not something you want to do often. If this is something you are thinking about, here are four things you might want to do before contacting a lender.
Consider Your Equity
If you want to refinance your loan, your equity matters. Some loans offer up to 96.5% of your home's value, but others require having at least 20% equity. You can find out your equity amount by subtracting your loan balance from your home's current value. If you are unsure about your home's value, get an appraisal. You will need an appraisal if you refinance, but getting one ahead of time often makes sense. When you get one beforehand, you can find out your home's value before refinancing, which may help you decide if you want to go through with it.
Look at Your Credit and Financial State
Secondly, you may want to look at your financial state and credit score before refinancing, as lenders look closely at these things. Lenders base their loan decisions on risk levels, and they calculate a person's risk level by looking at their credit and finances. One thing that lenders do is calculate a person's debt-to-income ratio, as this tells them if a person can afford a loan. The person's credit score tells the lender if they are creditworthy, and it plays a major role in the approval process.
Evaluate the Current Interest Rates
Next, you might want to consider the current interest rates on loans. If you notice that rates are higher than your current rate, refinancing might not be a good option right now. Instead of refinancing now, you may want to wait until interest rates drop a little.
Determine Why You Want to Refinance
Finally, you should consider the reason you want to refinance. There are several good reasons to consider refinancing, including getting a lower interest rate or payment amount. Another good reason to refinance is to drop the private mortgage insurance you currently pay to your lender on your existing mortgage loan.
Taking the time to do these things before refinancing can help you determine if you should go through with it. If you have questions about interest rates, loan programs, or other factors relating to home refinancing, contact a lender today, like MidwestOne Bank.