The guidelines for the mortgage industry as a whole are changing rapidly in this market. A borrower must rely on an experienced loan officer for help in navigating the world of refinancing a mortgage. The loan officer will help you decide when, and if, to refinance your home loan. Refinancing too many times will simply cost you money and squander the equity in your home.
You might want to refinance your home for any number of reasons. First, you may want to combine debts, such as a first and second mortgage or several outstanding loans, to lower your overall monthly payment. Second, you may want to refinance to remove PMI (private mortgage insurance) from your loan. Third, you may simply want to take advantage of a lower rate. Whatever the reason, refinancing a mortgage can make sense in a number of different situations. You, along with the loan officer, should analyze the data to make the right decision.
The number of times you can refinance your home depends on several factors. You must be eligible to refinance--there must be enough equity in your home and you must meet all the loan requirements. Also, there may be a wait of six months to a year to refinance in the event of a new home purchase. Besides these two factors, there is not a literal limit on the number of times a borrower can refinance. However, it would not be wise to do it more than one to two times over the life of the loan because of the expense of closing costs.
You should look at the whole picture before refinancing. The two best calculations that a borrower can use to make this decision are as follows: Divide the closing costs into the monthly savings. If the amount of time to pay off the closing costs is less than two years (24 months), and the borrower is going to stay in the home longer than that time period, it is worth considering refinancing. Also, if the interest rate is at least 1 percent lower than the current interest rate, it is worth considering. If the interest rate is 2 percent lower, it is definitely time to refinance.
Borrowers should always look at the APR (annual percentage rate) when comparing mortgages. Most compare only monthly interest rates to decide which deal is best. The APR is calculated based on the monthly interest rate and the overall cost to do the loan. The lower the APR, the lower the overall cost.
Refinancing more than one or two times over the life of the mortgage eats away at the equity of your home by costing you thousands in closing costs. Do not go into a refinance lightly. Consider the options and think long term.
- Photo Credit Image by Flickr.com, courtesy of Wonderlane
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