There are many different reasons why you may be thinking about refinancing your home. Changes in interest rates may mean you can reduce your monthly repayments, or you may be considering shortening the term of your mortgage. In some cases, refinancing is a sensible way of consolidating debts or tapping into your home’s equity for a large purchase. Whatever your reasons are, you need be know how to calculate your home refinance.
Making a mistake with your home refinance calculation can end up costing you money, so don’t make any decisions unless you’re confident it’s the right thing to do. The calculation should estimate the amount of money refinancing should save you. Gather together details of your existing loan so that you can make comparisons with other rates available. Be clear on your goal before refinancing, as there are other factors you may need to take into account. It’s also worth thinking about options such as a fixed-rate mortgage if they suit your personal circumstances.
Saving even just one or two percent on your mortgage interest rate can make a huge difference to the amount you pay for your home over the period of the loan. The process of refinancing can take time, but it’s worth it if you can save thousands of dollars. New deals are appearing all the time, and the mortgage market is highly competitive. Lenders are constantly trying to win new customers, so shop around regularly to see what’s available.
The amount of equity you have in your home is a key factor in your refinancing options. Your equity is the difference between the value of your home and the balance outstanding on your mortgage. If you have a lot of equity you’re in a very good position for getting the best refinancing deals.
Another way of assessing the position with your current mortgage arrangement is to look at your loan-to-value ratio. This is calculated by dividing the loan balance by the current value of your home. For example, if the outstanding balance is $100,000 and your home currently appraises for $400,000 the loan-to-value ratio is 25%. A low loan-to-value ratio puts you in a very strong position for refinancing, and you should meet most lender’s requirements.
It’s important to remember that your credit score will be checked by a lender if you decide to refinance. There’s no need to pay for a credit check as there are several ways you can access your credit score online free of charge. Most lenders use credit scores from the Fair Isaac Corporation (FICO), and you can get a free trial of this service to see what’s on your file before making any lending applications. It’s not unusual to find errors on your credit history, and it’s worth taking action to correct these.
An easy way to understand the benefits of changing your mortgage is to use a home refinance calculator. Home State Bank offer this online calculator free of charge, and it only takes a few minutes to enter the information required.