A Credit Sesame analysis of January 2012 user data reveals that, on average, homeowners who would qualify for a refinance based on their credit profiles, income and equity in their homes, are overpaying an average of $471 per month on their mortgages.
According to the findings, only 30% of all qualified homeowners will pursue a refinance, while 7 in 10 qualified households will continue foregoing average savings of $56,520 over the course of 10 years. This means 14 million homeowners are throwing away $56,520 in savings.
With mortgage rates at record lows and the potential savings advantages, why aren’t more people refinancing? According to Adrian Nazari, Founder and CEO of Credit Sesame, Inc., “Many homeowners simply aren’t aware that there are better options available to them—options that could potentially save them thousands of dollars on their mortgage.”
Sufficient home equity: Don’t expect to be able to refinance right out of the gate after buying your home. Lenders will be looking for a healthy amount of equity before they agree to refinance your loan. But figuring out your equity can be tricky in this market – especially if your local market is wildly different than when you first bought (which is likely even if you bought only two years ago. Read more about the topic here
Cash to close the refinance: Yes, refinancing will cost you money to do, which is another reason you’ll want to thoroughly examine the math before jumping into a decision. Sometimes it may not make financial sense. Get an estimate of costs involved from your lender before making any decisions.
When to Refinance
Lower interest rates are often one of the big reasons why many homeowners might choose to refinance their mortgage. The general rule of thumb on refinancing is to refinance when you can lock in an interest rate that is ½ to 1 full point lower than your existing mortgage or, when mortgage rates drop 2% below your existing rate.
1. Higher Credit Scores. The best mortgage rates and loan terms are typically reserved for consumers with the highest credit scores. If your credit score has improved significantly since you bought your home, it’s possible that your new credit standing will qualify you for a much better rate and loan terms.
2. Reduce Risk with Fixed-Rate Loan. Adjustable Rate Mortgages (ARMs) usually have much lower interest rates initially than the Fixed Rate mortgages. However, once the variable rates start, depending on the economic conditions, the payments may rise significantly.
3. Reduce Mortgage Terms. To save money by reducing the length of your mortgage, you may have to take on higher payments, but in the long run, you will be paying less in interest.
Refinancing isn’t always the right decision. But with the prospect of potentially saving $471 a month, it’s well worth considering!
If you want to explore refinancing I would be happy to put you in touch with one of our preferred lenders.
Or you can apply online here
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