Everybody is refinancing their homes at present. Somebody is talking about refinancing everywhere you turn. There is no doubt about the fact that refinancing your home does come with quite a few benefits. In fact, if it did not then it would not have been such hot news. But, it does not imply that there is nothing that you should not consider while refinancing your home out there. Refinancing your home happens to be a legal contract plus a debt which you are entering into. In fact, you must do it only after giving some time, thoughts, and attention. Many homeowners have made the mistake of rushing out for signing the first refinancing deal they can. However, once they realize that they have made a mistake they can do nothing whatsoever. In the subsequent paragraphs, we have thrown light on the top 3 vital factors that you must take into consideration while refinancing your home.

Not all are eligible to refinance


The original mortgage which you have on your home happens to be a legal contract that you have entered into. Not every lending institution or financial institution will enable you to set aside that loan and find a new mortgage. Moreover, refinancing into a fresh mortgage likewise has qualifications that come with it. This includes the home’s value, credit history, and so forth. Some individuals have found that they are not eligible for refinancing because of poor credit history. As a matter of fact, you will get a lower interest rate in case your credit history is good. You might be ineligible for a particular interest rate in case you have poor credit.


To believe that you are eligible for refinancing without first checking with your present mortgage holder will be a mistake. You will save plenty of time and effort if you verify with your present mortgage holder about their refinancing policy. Moreover, you need to perform some checking on your personal credit score too.


It involves a penalty in most cases


Once you realize that refinancing implies setting aside your initial mortgage, you might question whether your bank will allow you. Are they going to lose money in the interest which you will continue paying for the life of the mortgage? The answer, in this case, happens to be in the positive. As a matter of fact, they will lose money. Consequently, the majority of the banks impose a stiff penalty for anybody who prefers paying off their mortgage early. The same implies to anyone who likes to refinance with any other lending institution.


On some occasions, the penalty can be quite steep and is typically triggered as a percentage of the current mortgage. Therefore, the penalty will be quite high in case the principal amount which you owe is quite high. In case you are not certain whether your present lender imposes a penalty for every payment, ask them directly.


Refinancing does not always save you money


Many individuals have found that while adding up all the penalties and fees they are not saving any money. Most of the lending solutions at present refer to a breakeven point. This implies the number of months it takes for paying a smaller mortgage payment before covering oneself from these penalties.


You should add up all the potential costs if you’d like to understand whether you can save money at all. Following this, you might take the amount of cash you will save every month with the new mortgage. Then, you can divide these costs by this number to figure out the number of months it will require.


Here, we like to give a quick example. Suppose your closing costs, penalties, as well as other charges add up to $3000. Suppose the current mortgage payment happens to be $1000. In that case, your new mortgage payment is going to be $850 with refinancing. This implies that you will be saving $ 150 every single month. In fact, we get 20 by dividing $3000 by $150. It will take you 20 months to simply break even from your fees and penalties.

However, your personal numbers are going to be different. Nevertheless, it provides you with some information to ponder about. Suppose your savings every month is even less and expenses are even more. Moreover, it takes you quite some time to simply break even. In that case, would it be worth your time and effort to go through refinancing first of all?