With the recent drop in interest rates to historic lows it is giving current home owners and prospective buyers an opportunity to save money with low mortgage rates.
Depending on the lender, the amount borrowed and the type of loan you may be able to lock in a 3With the recent drop in interest rates to historical lows it is giving current home owners and prospective buyers an opportunity to save money with low mortgage rates.
Depending on the lender, the amount borrowed and the type of loan you may be able to lock in a 30-year mortgage around 3%.
Consider these key areas when refinancing or buying a new home:
Know Your Home's Equity - Homeowners with at least 20% equity will have an easier time qualifying for a new loan.
Know Your Credit Score - Lenders want to see a credit score of 760 or higher in order to qualify for the lowest mortgage interest rates. Borrowers with lower scores may still obtain a new loan, but the interest rates or fees they pay may be higher.
What is Your Debt-to-Income Ratio - Lenders usually want to keep the monthly housing payments under a maximum of 28% of your gross monthly income. Overall debt-to-income should be 36% or less, although with some additional positive factors some lenders will go up to 43%. You may want to pay off some debt before refinancing in order to qualify.
Cost to Refinance - Some lenders offer a "no-cost" refinance, which usually means that you will pay a slightly higher interest rate to cover the closing costs. Don't forget to negotiate and shop around since some refinancing fees can be paid by the lender or reduced.
Rates vs. Term - If your goal is to reduce your monthly payments as much as possible, you will want a loan with the lowest interest rate for the longest term. If you want to pay less interest over the length of the loan, look for the lowest interest rate at the shortest term.
Points - Equal to 1% of the loan amount, are often paid to bring down the interest rate.
Break Even Period - The point at which the costs of refinancing have been covered by your monthly savings.
Private Mortgage Insurance (PMI) - Homeowners who have less than 20% equity in their home when they refinance will be required to pay PMI.
Property Taxes - If you refinance and begin paying less in interest, your tax deduction may be lower, although few people view that as a reason to avoid refinancing.