Should I Refinance My Home in 2021?
Many homeowners in 2020 began the process of refinancing their mortgages because of historic-low interest rates.
If you’re reading this, it is because you must be wondering whether to refinance your home in 2021 — and if it’s even worth it. Our friends at Money have done the research for you.
Here’s what you need to know to make a decision to refinance your home mortgage.
Refinancing Challenges During Covid-19
· Lenders are overwhelmed by the number of refinancing applications due to reduced staffing and working hours
· To avoid spreading the virus, appraisers may not be permitted to visit your home
· Lenders are tightening their lending requirements as a risk-lessening measure called mortgage overlays
· New “adverse market refinance fee”, effective December 1, 2020, has been projected to drive up the costs of refinancing.
Debt-to-income ratio (DTI)
DTI consists of all your monthly debt payments added up and then divided by your gross monthly income. This helps lenders decide on your ability to pay back your refinanced mortgage.
Credit Score
When choosing to refinance, your credit score plays a big role. For this reason, it is important to make sure you have a good credit score so you can actually save money by locking in a better interest rate than your current mortgage.
Because of Covid-19, all three credit reporting bureaus (Experian, Equifax, and TransUnion) are now offering free, weekly credit reports through April 2021.
Visit annualcreditreport.com for more information.
Average Loan-to-Value Ratio (LTV)
The Loan-to-Value ratio is calculated by dividing the amount of the loan you want by the appraised value of your home. Usually, lenders recommend borrowers have at least 20% in equity to qualify for refinancing. This is a way for lenders to reassure that borrowers won’t default on the new loan.
What are the benefits of refinancing my mortgage?
· Lowers your interest rate
· Shortens the life of your loan
· Reduces financial risk
· Consolidates debt & gains cash with cash-out refinancing
· Gets rid of PMI
· Adds or removes a loan cosigner
Is now a good time to refinance?
This is a decision that should not be taken lightly. Even with record-low interest rates, refinancing your current mortgage can tend to be costly for most people.
Lenders charge fees for refinancing your current mortgage which may include origination, appraisal, attorney fees, courier, and underwriting fees. This can reach up to 5% of the total amount of the loan.
To make sure this is the right move for you, make sure to shop around different lenders, have your finances in order, and know the terms and conditions of the refinanced loan. If done wrong, you could potentially end up with a higher interest rate and payment that could cause trouble in the long run.
