This is an inquiry many homeowners may have when they are thiking about
re-financing their home. Unfortunately the answer to this question is a rather
complex one and the answer is not always the same. There are some standard
situations where a homeowner might investigate the possibility of re-financing.
These situations include when interest rates drop, when the homeowner�s credit
score improves and when the homeowner has a significant change in their
financial situation. While a re-finance may not necessarily be warranted in all
of these situations, it is certainly worth at least investigating.
Drops in the Interest Rate
Drops in interest rates often send homeowners rushing to re-finance. However the
homeowner should watchfully consider the rate drop before making the decision to
re-finance. It is important to note that a homeowner pays closing costs each
time they re-finance. These closings costs may include application fees,
origination fees, appraisal fees and a variety of other costs and may add up
quite quickly. Due to this fee, each homeowner should carefully evaluate their
financial situation to determine whether or not the re-financing will be
worthwhile. In general the closing fees should not exceed the overall savings
and the amount of time the homeowner is required to retain the property to
recoup these costs should not be longer than the homeowner plans to retain the
property.
Credit Score Improvements
When the homeowner�s credit scores improve, considering re-financing is
warranted. Lenders are in the business of making money and are more likely to
offer favorable rates to those with good credit than they are to offer these
rates to those with poor credit. As a result those with poor credit are likely
to be offered terms such as high interest rates or adjustable rate mortgages.
Homeowners who are dealing with these circumstances may investigate re-financing
as their credit improves. The good thing about credit scores is mistakes and
blemishes are eventually erased from the record. As a result, homeowners who
make an honest effort to repair their credit by making payments in a timely
fashion may find themselves in a position of improved credit in the future.
When credit scores are superior, lenders are prepared to offer lower interest
rates. For this reason homeowners should consider the option or re-financing
when their credit score begins to show marked improvement. During this process
the homeowner can determine whether or not re-financing under these conditions
is worthwhile.
Changed Financial Situations
Homeowners should also consider re-financing when there is a considerable
transformation in their financial situation. This may include a large raise as
well as the loss of a job or a change in careers resulting in a considerable
loss of pay. In either case, re-financing may be a viable solution. Homeowners
who are making considerably more money might consider re-financing to pay off
their debts earlier. Conversely, those who find themselves unable to fulfill
their monthly financial obligations might turn to re-financing as a way of
extending the debt which will lower the monthly payments. This may result in the
homeowner paying more money in the long run because they are stretching their
debt over a longer pay period but it might be necessary in times of need. In
these cases a lower monthly payment may be worth paying more in the long run.
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