I was recently on an appointment at a past clients home in West Knoxville. They had bought a home from me in Farragut a few years ago and were considering either moving or refinancing their current home. They didn’t know what they wanted to do move or refinance they just wanted to take advantage of the low rates either way.
We looked at some homes in the West Knoxville neighborhoods they were interested in moving to if they decided to sell their home. They were comfortable if they decided to sell they could find another home that would fit their needs.
Now they had to address the question of refinancing and staying in their current home. I told them them there are 3 questions they need to ask and explore to see if that was the best option for them.
Here are 3 questions to consider when you are thinking about refinancing:
1.Planning on moving? The first item to consider is whether you’re going to own the house in question for at least two to four more years–the longer the better. If you’re not planning on owning for at least a couple years, refinancing may not be a net benefit to you. HOWEVER: The bigger the mortgage, and the bigger the differential between your current mortgage interest rate and the rate you might get by refinancing, the more refinancing might make sense even on a shorter term basis like two years. So rather than dismiss the idea, this is a good topic to discuss with your mortgage professional in terms of your unique situation.
2. Can you even qualify for a refinance? It can be tough to refinance these days. If your loan-to-home-value ratio is too high–meaning that your property doesn’t appraise at a high enough value in comparison to the amount that is still outstanding on your loan–it may be harder to refinance. The bank may also consider you to be a higher risk if you’re self-employed, have a high debt-to-income ratio, or if you have credit issues. But the only way to know for sure is to check with your mortgage lender to examine your options.
3.What are the costs versus the reduction in interest rate? If you are qualified for financing, your lender will also let you know what interest rate you can secure and how much it will cost you to refinance. You can then do a rate versus loan fee comparison to see if refinancing makes sense. For example, if you refinance a $300,000 loan it might cost $6,500 once you add up points, escrow, title, appraisal, etc. If your loan is dropping by one-half of a percentage point you will save $1,500 per year, which is about $1,000 after taxes. So if you are paying $6,500 to save $1,000 per year, it will take you 6.5 years to earn your money back. That may or may not be a good deal for you, depending on how long you are planning to stay in your home. The bottom line is add up all the costs you will incur by refinancing (remember to exclude items like prepaid interest, taxes and HOA fees that you pay whether you refinance or not) and compare these to your cost savings. This will help you determine whether now is the time to refinance.
Tough decisions to make I’m more than happy to help you out explore your options. Want to check out the homes currently for sale take a look on ThBigOrangePress. Call me at 865-696-9002 if you would like to talk about it or sent me an email at [email protected]
Need to find out your mortgage options Contact Darren Poppen at MIG. Call him at 865-936-3965 or email him at [email protected] . Busy and prefer to get pre-approved on line go here and Darren can take care of it for you.
Also if you are renting you may want to check our recent articles on Renting vs Buying