Three Things to Consider Before Refinancing

As mortgage rates reach all time lows here in California, many homeowners are considering a refinance of their existing home loans. While dropping mortgage rates may be music to the ears, there are a few things to consider before refinancing.

1. How Long To Recoup The Costs of Refinancing
Closing costs and fees are a part of any refinance transaction, so it’s important you factor these costs into your savings strategy. In most cases, your mortgage broker or lender should detail your estimated monthly savings as well as the estimated closing costs and fees. A simple calculation will let you know how many months, or years, it will take to recoup the costs of refinancing. Think about your short term and long term plans for your home, and determine if the costs of refinancing makes sense. Ideally, your refinance should pay for itself within a few years, and even less if you are planning to sell or move.

2. Do You Have Enough Time To Refinance?
Refinancing could just be the best Christmas present you give yourself this year, but keep in mind the refinancing process could put a damper on your holiday season. In general, for single family owner occupied homes, the refinancing process lasts anywhere from three to six weeks. If you foresee any extenuating circumstances such as poor credit, insufficient documented income, or sliding home equity, don’t be surprised if the process takes even longer. The credit market in California is still quite fragile, and it’s not uncommon for many homeowners these days to face trouble when refinancing. But, if these mortgage rates are just too good for you to pass up, just be sure to set enough time during this holiday season.

3. Evaluate Your Home’s Equity And Then Consider Your Options
In California, the most troubling obstacle for homeowners has been the widespread freefall of home values. During the refinance process, lenders require an appraisal of your home and then evaluate your home’s loan to value ratio. Before considering all your mortgage options, make sure your home has enough value to qualify for a refinance. Although select lenders may make special exceptions, most will like to see at least twenty percent equity in your home. If refinancing to a cheaper mortgage is your top priority, pay special attention as a lower risked home will qualify for better mortgage rates.