If you are considering refinancing your mortgage, you should know when is the right time to do it. By checking visionretirement, you can learn more about it. Refinancing not only changes the interest rates on your loan but also affects how much money you will owe in total. Here are things that every homeowner should know before refinancing their mortgage.
Know Your Home’s Equity
If you do not know how much equity you have in your home, it is important to figure this out before refinancing. Equity can be calculated by subtracting the total loan amount from the current market value. For example, if a homeowner has an outstanding mortgage balance of $250,000 and their home’s current market value is $300,000, the equity in their home would be $50,000. Refinancing to consolidate debts may not be worth it if you do not have a lot of equity in your home. This is because refinancing will add to your loan amount and could increase your monthly mortgage payments.
Check Your Credit Score
Just like before applying for a loan to buy your home, you will need to check your credit score before refinancing. Your current mortgage lender may require that the borrower has an acceptable FICO credit rating to qualify for refinancing. If there are errors on your credit report, these must be cleared up before obtaining a new loan.
Know Your Breakeven Point
Refinancing your mortgage can be a great way to save money on interest payments, but knowing when you will break even is important. This is the point at which the amount of money you save through refinancing equals the cost of refinancing. For example, if your current mortgage has an interest rate of four percent and you refinance to a three percent interest rate, you will break even after five years.
Know Your Taxes
When refinancing, you will need to be aware of the tax consequences. If you refinance your home mortgage and take out cash simultaneously, you may have to pay taxes on that money. The IRS considers this a “cash-out” refinance and will treat it as such for tax purposes. Knowing your taxes can help you plan for this before deciding to refinance your mortgage. There are several ways that homeowners can refinance their mortgages, but not all of these options may be available in every situation.
We hope our blog post has helped you better understand what refinancing can do for your mortgage and how it might impact the life of your family. If you’re considering whether or not now is a good time to refinance, we recommend that you consult with experts in the field before making any rash decisions. A simple phone call could help answer all those nagging questions about which type of loan will work best for your situation. Contact us today, and let us be there as partners on this journey together.