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Top 5 AZ Mortgage Refinance Questions

05-08-2015About MortgagesEddie Knoell

Lenders have seen a dramatic surge in home refinancing applications, as existing homeowners look to take advantage of historically low mortgage rates. An Arizona mortgage refinance loan is the ideal solution for many homeowners; however, it may not be for everyone. To determine if you should apply for this type of loan, consider the following:

Should I refinance?

To determine if a refi loan is best for you, first assess your ultimate goal. Are you interested in reducing the term of your existing mortgage? Do you want to improve your financial situation by reducing your current payments? Do you need to raise cash by tapping the equity in your home? First identify your goal and then contact an Arizona mortgage refinance professional for suggestions on mortgage programs that will fit your needs.

Do I need perfect credit?

Not necessarily. Even applicants with imperfect credit histories can attain a refinance loan; however, they may receive a higher interest rate. Lenders view people who have poor credit scores as potentially risky investments. To manage this risk, they try to get a quicker return on a loan by charging a higher interest rate. In the end, this may play a major role in determining whether the cost of refinancing will outweigh the benefits.

Do I need equity to qualify?

Yes. Generally, you will need to have a 90% loan-to-value ratio to qualify for a mortgage refinance loan. This means your house will need to be worth approximately 10 percent more than your current mortgage loan. Property values are on the decline throughout much of the United States, and this has siphoned away a substantial amount of equity from many homes. That said, just because some Arizona homeowners have lost equity doesn’t mean they all have. A mortgage expert can help you determine whether your home has a high enough value to merit a refinance loan.

Should I refinance when I lower my Interest Rate 1%?

You have probably heard “You should only refinance if you can lower your interest rate 1% or more”. This rule of thumb came about in the 1950’s and was used to make sure refinancing costs were offset by the interest savings in less than 4 years. Today, isn’t an accurate rule of thumb. Loan amounts are much larger in comparison to refinance costs. The closing costs associated with a refinance with interest savings of a 1/2 percent can often be recouped by the interest saving is 2 years.

How much will it cost?

Mortgage refinance can save homeowners a lot of money; however, closing costs can eat up some of these savings. Generally, closing costs amount to approximately 1 to 2 percent of the loan amount. In some instances, borrowers find that they save more when they choose to pay points, which effectively lowers the interest rates on their loans. Modern low- or no-cost refinance options can also help borrowers ensure that they will come out ahead.

When it comes to mortgage refinance, there are a lot of things to consider. Ultimately, refinancing should save you money. A new loan won’t make a lot of sense if closing costs are going to eliminate all or a good portion of your savings.

That said, under the right circumstances, a refinance loan can make a considerable difference for homeowners who need to free up money by tapping their home’s equity, lower their monthly mortgage payments or save on interest by shortening the term of their existing loan. Contact Eddie to learn how to apply for mortgage refinance online.