Many mortgage borrowers consider refinancing when the real estate market presents low mortgage rates among various lenders. Chances are that they immediately take the plunge into refinancing without having critical thinking and deliberate decision-making. What many fail to realize is the fact that refinancing is actually a tricky process. You must first think things over to see if it’s worth to have your loan refinanced; otherwise, your wrong decision will lead you to pay more in a longer loan term.
There are a few considerations to make before getting your mortgage refinanced. Below are the three major factors to consider when planning to refinance in Los Angeles.
1. Your primary reason to refinance
When it all boils down to refinancing, there are two major reasons to do so. First, you would want to reduce your monthly mortgage payment. Second, you would want to save on your overall interest as you pay your property over time. In general, people consider refinancing options to save up in the long run.
If you merely want to refinance because of the low-interest rate offered by a particular lender without crunching the numbers first, you may end up paying more than less in the long run. If you want to refinance to take advantage of the equity or splurge on things, then it defeats its primary purpose.
2. Your length of stay at home
Another important consideration is the length of time that you will be staying in the property. If you plan to stay in the house for good, then that’s a valid reason to refinance as long as the terms and conditions are better than your current mortgage. If you don’t necessarily plan to stay in the property for long, then refinancing will be an impractical decision.
Most refinanced loans take between several months to years to break even before you can start saving up. Know that if you refinance your mortgage, the term of your loan will be extended for several years. As a result, if you plan to sell the property soon, you won’t benefit from refinancing.
3. Your eligibility for refinancing
Sure, you may have a good reason to refinance, and you choose to stay in the property for good. But the question is: are you qualified to do refinancing? If you have bad credit or have always been a late payer, keep in mind that your chance of getting approved is slim. You don’t want to waste your time, money, and effort only to find out later on that you aren’t eligible for refinancing.
For your reference, your ability to refinance depends on a handful of factors. For the most part, the approval is based on 1) the amount of equity you have in your house, 2) your income, and 3) your credit. That said, consider all these three, and see if you are indeed qualified to refinance in Los Angeles.
At this point, you now know that deciding to refinance isn’t only when the mortgage rates are low. You also shouldn’t take the plunge into refinancing because you want to increase your retirement contributions or shore-up your budget.
You should refinance because you have a good reason to do so (to save up), as you consider staying in your property for long, and because you are qualified to do so. When you factor in all these three, you will be heading in the right direction.