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Deciding when is the best time to pull the trigger on a home loan refinance, as a rule of thumb, is not always clear. Refinancing seems like a new opportunity to get a better interest rate or perhaps even to take funds out of equity to use for your own benefit. The problem is, though, that refinancing can be costly in some situations. It is a good idea to know when to refinance and when it can cause you to end up spending more on your mortgage, rather than less.

What are good rules of thumb to refinancing? According to some experts, the following tips can help you to save money on refinancing. To learn when to refinance, consider the following:

How much is the new interest rate going to be? Most experts warn not to refinance unless the new rate will be at least one to two percent lower than what you are paying right now. Anything less than that and you may not end up saving as much (considering you have to pay closing costs on the new loan).  You must be able to compare the actual payment amounts if you want to accurately estimate if it’s a good idea to refinance. I do not fully agree with this as each situation is case by case. Sometimes 2% is not enough and sometimes .5% is a good refinances. It all depends.

Take your current loan product into consideration.  The type of current loan you have might make a huge difference.  For instance, if you have an ARM that’s at 5% currently, and can refinance into a fixed rate at 4%, this doesn’t make the 2% rule of thumb.  However the long term security of a fixed rate may be awfully attractive.  Things like mortgage insurance, loan terms and pre-payment penalties should all factor into the decision. Other exceptions apply.

Are you planning to remain in the home at least five years? If not, then refinancing may not help you to save any money. To save money on a refinance, you must stay in your house longer than the break-even period – the period over which the interest savings just cover the refinance costs. But again, call me because sometimes we have options where we can absorb costs because your break even must be within 6 months or 12 months or immediate, whatever the case may be.

 How much equity do you have in your home? If you plan to withdraw that equity, or some of it, to consolidate debt or to do home improvement projects, plan to have at least 20 percent in place. Some lenders will not allow you to borrow up to 100 percent of your home’s value, either. Some programs allow 85% while some max out at 75%.

 Do you have good credit? You may not qualify for a lower interest rate loan or save money overall if you do not have good credit. The better your credit is, the less you will pay to get a loan. If you have bad credit, it is likely that refinancing will be more difficult and will cost you.

 Know your goal. Do you want a lower monthly payment? If so, you may pay more in the long term. Do you want to pay off your loan sooner? Try reducing the term and getting a lower interest rate, too. Ensure that you can accomplish your goal.

Don’t be afraid to ask for qualified advice

The fact is if you cannot save money, then it probably doesn’t make sense to refinance. Otherwise, it may cost you more in the long term and not make any sense for you to pay the closing costs on a new loan.

The rules of thumb are great for weighing the pros and cons – but remember, they are just guidelines.  You should never make a decision as important as whether or not to mortgage your home based on general ideas, and that’s why we recommend taking the time to sit down with your favorite loan officer and get the facts. And in this situation, it’s important to be cautious with advice from friends and family members as it’s just that – free advice. 

In days past, if you had a less than perfect credit rating it usually meant that someone was irresponsible or simply unethical in how they handled debt. Today, many hard working people have less than perfect credit due to a number of reasons not all of which are under their control.

At the same time, banks are being much pickier about whom they lend money to and that means that the credit ratings required to get loans are higher than ever. Finding a mortgage lender that can help you if you have less than ideal credit will require that you accept a couple of things.

You May Pay Higher Interest Rates

Credit ratings improve when you’ve been on time with payments for a while and when you’re re-established that you’re not an extreme risk to creditors. One way of doing this is to take out a high interest loan for a while and, when you’ve been paying on it regularly, to re-apply for a better loan.

Higher Down Payments

Another effect of having weak credit is that you may have to come up with more money for your down payment on your loan. This does have some advantages, however. Principally, it lessens the amount that you have to pay interest on and that means that your home is more affordable from the start.

Mortgage Insurance

Everyone needs mortgage insurance for higher LTV loans.  However the amount and rate of mortgage insurance may increase if your credit isn’t so good and this will have to be factored into the loan. A good mortgage broker that helps people with less than perfect credit can make sure that you understand this insurance and can make sure that you don’t end up overpaying for it. This insurance may well be the only reason that you’re even able to finance a home, so don’t be put off by the additional cost that it adds to the purchase price.

A good mortgage broker that helps people with less than perfect credit can find most anyone an affordable, valuable loan that will make a home a realistic option for them.  And at NOLA Lending, we take pride in serving the needs of our customers so that you get Your Loan, Your Way!

If you have an adjustable rate mortgage or a home mortgage with rates that aren’t favorable, you may want to consider refinancing. Before you do, however, you have to take a look at your situation and see if it’s a good time to go through with it. Even though the rate will drop, there are some big considerations with this move that you have to take into account.

Has Your Credit Improved?

Your score is important and has an impact on your rate. If you’ve suffered financially in the last few years and your credit score reflects as much, you may want to still call so your lender can tell you what to work on. To get the most basic shortcomings on a credit report fixed:

• Bring all your accounts up to date
• Hold off on applying for any new credit such as credit cards or finance company loans

Some credit repair can be quicker than you think.

Are You Staying In Your Home?

Discuss it with your lender if you think you may have plans on moving within 5 years. They may offer you a different set of mortgage options to get the benefit of a better rate but keep the cost low with products like adjustable rate mortgages.

Talk to a Loan Officer

It’s important to talk to a mortgage advisor about your refinancing options and not just take advice from the neighbor or a family member!

The mortgage experts at NOLA Lending will listen to your situation and may advise that you consider refinancing to bring down your rate. There is sometimes a real financial need to take this step and to bring your rate down to an affordable level. Talking to an expert is the best way to find out what’s out there and how you can get credit in these rather tough times.