How To Determine The Best Time To Refinance
When applying for a refinance, one wants to make sure that you have the best possible credit score
. Your credit has a great impact on your loan. Your credit profile will affect the home loan interest rate, your ability to qualify for the refinance, and the type of home loan program you can apply for. Since your credit plays an important role in the home mortgage loan process, it is important to understand the relationship between credit and the home loan qualification process. It is also important to know what you can do in order to have the best possible credit profile and score before applying for a refinance. Credit scores use consumer debt and payment history to create a three digit score. Experian, one of the USA's three credit bureaus, lists the key elements as the number of and severity of late payments; type, number and age of accounts; total debt; and public records. The credit bureaus maintain the information for up to ten years after a positively maintained account is closed or for seven years after an account enters delinquency. Refinancing usually involves paying off existing mortgages and replacing them with new loans. Although paying off a loan is viewed favorably by credit scoring models, any increase to your scores would probably be more than offset in the short-term by taking on the refinance, which tends to lower scores.
John recently refinance mortgage loans with one lender (all at one time). His credit score was 809, 802 and 820 with the three credit bureaus. He is curious if refinancing three properties would have hurt his scores? Refinancing his rental properties and taking on new debt may have caused his credit scores to fall somewhat, although any damage is likely to be quickly erased by responsible borrowing. But again, in refinancing a property, you aren't actually eliminating the debt, just shifting it to get more favorable terms and ultimately save money. In this instance, the original loans were paid in full, but he didn't reduce his debt load because he refinanced the loans into a new loan. The new loan may offset the positive impact of paying off the original debts.
A house is the largest asset you may ever own. Likewise, your mortgage payment may be the largest expense you will have in your monthly budget. Wouldn't it be great to use this asset to reduce your monthly payment and put extra cash in your pocket? When you refinance your mortgage, you can take advantage of the equity in your home and enable this to take place. When you purchased your dream home, the financial environment dictated interest rates. While certain factors, like your credit rating and the amount of the down payment that you were able to afford, influenced your interest rate, the single most important factor was the prevailing rates at that moment. However, interest rates fluctuate. When the Federal Reserve enters a rate-cutting period, the prevailing rates may become significantly lower than when you originally purchased your home. By refinancing your mortgage when interest rates are lower, you can exchange a higher interest rate for a lower one, which, in turn, will lower your monthly payment.
Determining the best time to refinance home mortgage can take some effort on your part, but if you educate yourself on market trends, your research might help you save a lot of money on your mortgage. There are a number of circumstances that contribute to when and why you should consider refinancing your home mortgage. There's no doubt about it that lenders have tightened the guidelines they use to evaluate loan applications. That means borrowers who want to refinance their mortgage to take advantage of low interest rates may wonder whether they will qualify for a new loan. Understand what lenders look for when they evaluate mortgage refinance applications. Your credit scores also can be an important factor in your ability to qualify to refinance your home mortgage. While there is no specific minimum credit score that you will need to refinance, keep in mind that if your credit is impaired, the interest rate and terms you will be offered might not make refinancing an attractive option. If you have a strong credit score (and a good track record of paying your bills on time), you will likely be offered a lower interest rate and better terms. Also, keep in mind, if you do qualify to refinance home mortgage, you should still consider whether refinancing makes sense for you.
by: Ask Bill
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