In a recent post, we discussed the benefits and costs of refinancing your home loan in Dallas or elsewhere in Texas.
Following are some questions to ask yourself and some factors to consider if you decide to move forward with a refinance.
1. How is your credit score?
One of your first considerations should be your current credit score as well as other financial metrics such as your debt-to-income (DTI) ratio.
If these have improved since you took out your original home loan or stayed the same, you may qualify for a refinance. The higher your credit score and the lower your DTI ratio, the more competitive the refinancing products you may qualify for.
So, if possible, try to you raise your credit score before you apply for a refinance. If you need recommendations on how to do this swiftly, we can advise you during your consultation.
2. How long do you want to stay in your home?
Refinancing is not just a matter of switching to a mortgage with a lower interest rate. It also entails making decisions about the nature of the lending product altogether.
This is a time to ask yourself if you are requirements have changed since you took out your original home loan.
One of the questions which you should ask yourself is how many years you plan to remain in your home.
If you only plan to spend a few more years in your home and you currently have a fixed rate mortgage, you might want to refinance to an adjustable rate mortgage with a low introductory rate.
But if you originally took out a mortgage with an adjustable rate and now believe that you will spend many years in your home, it may be wise to lock in today’s low fixed mortgage rates so that your rates remain predictable for the lifetime of your loan.
3. Has your income increased or decreased?
The next important question to ask yourself is whether your income has gone up or down and what you expect it to do in the future.
If you can afford to pay more on your mortgage now than you could in the past and you expect that to be the case over the years ahead, reducing your mortgage term when you refinance can help you pay off your loan faster without prepayment penalties.
Has your income dropped? If you expect to continue to struggle to pay all your bills over the years ahead, consider refinancing to a mortgage with a longer term instead to decrease your monthly payments.
4. Are you ready for the costs of a refinance?
Refinancing a mortgage requires that you pay closing costs either upfront or bundled into the new loan.
Calculate these costs against your potential savings to ensure that refinancing is financially worthwhile.
If possible, pay your closing costs upfront to reduce your interest rate over the coming years.
Also consider the option of paying points to further reduce your mortgage rate when you refinance.
5. Do you have debts to consolidate?
If you have other debts with high interest rates, now might be your time to make them less of a burden.
Find out whether it is possible for you to consolidate those high interest debts into your new mortgage.
6. Do you want to cash out?
Another consideration when you apply for a refinance is whether cashing out might be worthwhile.
In general, if you do not need to cash out, it is usually best not to, as it will take you longer to pay off the larger mortgage, and you will have less equity in your home.
But if you do need that extra money for an important expense, it can be an affordable option compared to other types of loans.
Try Our Refinance Tool
If you are wondering how much you could save by refinancing your mortgage now, look under “Resources” in the menu above and click on “Refinance Analysis” to try out our refinance tool. Using our refinance tool is a fast and easy way to preview some of the possible benefits.
Refinance Your TX Home Loan Today
If you want a more precise, in-depth analysis of how much you could save with a refinance and what other ways a refinance could benefit you, we would be glad to go over the possibilities with you during your refinance consultation. To get started now, please give us a call today at (214) 669-3307.