Could refinancing make your home sweet home just a little sweeter? A mortgage refinance is just as big a decision as choosing your first mortgage, and it deserves the same time and attention. Getting answers to these questions can help you make the right choice.
What is the value of your home?
The lender will consider your home's current value when deciding the amount—and if—you can refinance. You can find out approximately what your home is worth by checking the sale prices of comparable homes in your neighborhood. You'll probably need a professional appraisal to complete the refinancing process.
How much equity do you have in your home?
You usually need to have at least 20 percent equity in your home to qualify for a new loan without private mortgage insurance (PMI). Navy Federal offers mortgage options with no PMI, but if you don't qualify for those options, you'll need to run the numbers. Adding PMI to the cost of a new loan could negate the benefit of a refinance.
What interest rate will you get on a new mortgage?
Financial websites can give you only a ballpark figure. The details of your specific situation, such as your credit score and the type of mortgage you want, will affect the rates actually available to you.
What fees are associated with refinancing your mortgage?
In addition to closing costs for the new mortgage, be sure to consider any prepayment penalties on your current mortgage. (The good news: Navy Federal doesn't charge prepayment penalties.) Check out the ‘What will my refinancing costs be?' calculator to estimate your costs.
Are you upside-down (under water) on your mortgage?
If you owe more than what your home is worth, you may be able to refinance with the Home Affordable Refinance Program (HARP). It's available through Dec. 31, 2016. You may be eligible if:
- you haven't previously refinanced under HARP
- your mortgage is with Navy Federal
- your mortgage is current with no late payments in the last six months and no more than one late payment (more than 30 days late) in the last 12 months
Do you plan to move within a few years?
Closing costs for a refinance are typically three to six percent of the loan amount. You should compare your refinancing costs to the savings you'll enjoy from a lower interest rate. The Mortgage Refinance Break Even calculator shows how long it will take to reach the break-even point when the savings outweigh the costs. Also, consider how likely it is that a future situation—a work relocation or a family emergency—could prompt you to move sooner than expected.
Do you have a home equity loan or line of credit?
It's still possible to refinance, but it's more complicated. Options include:
- paying off the home equity loan or line
- combining the home equity loan/line with your mortgage into a larger loan
- asking the lender holding the home equity loan/line to stay in second position behind the lender of the first mortgage
What is your credit score, and will shopping around hurt it?
The interest rate a lender will charge you on your new mortgage may be based in part on your credit score. Your credit score can drop if multiple applications for credit trigger inquiries that appear on your credit report. But your credit score ignores inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping.
How does a refinance fit with your overall financial picture?
Consider all your of financial goals. For example, if you want to retire without a mortgage and you're in your 40s now, you probably wouldn't want to take out a new 30-year mortgage. If you can refinance into a shorter term, such as 15 or 20 years, it may align with your goal.
Should you roll other debt into your mortgage?
It might sound like a good idea to pay off some of your other debts by refinancing them into your mortgage—after all, the interest rate is probably lower, and it's more convenient to make one payment rather than several. However, you'll likely pay more in interest if you consolidate short-term loans into a longer-term (20- or 30-year) mortgage.
You can count on Navy Federal for easy-to-understand resources so you can learn what you need to know, plus access great rates, personalized service and servicing for the life of your loan.