Lower refinancing mortgage loan rates should be only one factor influencing your decision. Only by looking at refinancing from every angle can you be sure it's a wise financial decision.
Massachusetts refinancing rates and terms are based in large part on "loan to value" (LTV). LTV is simply the ratio of unpaid mortgage principal to home value. (For example, if you owe $150,000 in principal on a home valued at $250,000, then your LTV is 60%). The higher your LTV, the greater a risk you are to lenders.
So how do you determine your home's value? Obtain a professional appraisal. Usually your lender will arrange this. There are typically two types of home appraisals:
As a rule, Massachusetts refinancing lenders require you to have paid down at least 20% of the appraised value of your home.
A good credit rating (even if you have a high loan balance) will usually work in your favor. In fact, some lenders may allow borrowers with excellent credit scores to refinance to an LTV of as high as 95%.
Lenders will assess your debt-to-income ratio by comparing your monthly, pre-tax income with your total monthly debt obligations-including any additional debt you'd take on when you refinance.
Like your mortgage, there are additional costs involved in refinancing home loans. They include (but aren't limited to):
Ask your lender for an itemized list of costs to expect when you refinance.
No matter how attractive Massachusetts refinancing rates may appear, your break-even point will tell you if it's worth it. Follow these three steps:
Costs of refinancing---------------------------- = BREAK-EVEN POINTMonthly savings
For example, if your costs are $6,000 and your monthly payments will be $200 less, then it will take 30 months for your savings to balance out your costs. Your break-even point is 30 months.
So if you plan to stay in your home for more than 30 months, then this particular mortgage will save you money over the long term. But if you expect to move within the next 30 months, you'll actually lose money refinancing.
NEXT: The Refinance Application Process