Mortgage

Is it time to refinance? How to help clients decide

3 factors that impact the decision
  • More than 8.7 million U.S. homeowners are currently missing the chance to refinance, and ultimately, save money.
  • Credit scores are invaluable when it comes to refinancing a home.
  • With inflated home prices in cities across the country and threats of a housing bubble, it’s paramount for the homeowners to keep in mind the current market value of their home.

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Refinancing a home is a valuable way to save money and ultimately reduce a mortgage payment. At a high level, refinancing means trading a current mortgage loan for a fresh one.

Many homeowners look to refinance in order to pay off higher interest loans and debt, eliminate private mortgage insurance (PMI) or to fund another costly purchase in which case, homeowners might ask their agent for advice.

Typically, homeowners refinance to lower their monthly payment.

According to recent reports, more than 8.7 million U.S. homeowners are currently missing the chance to refinance and, ultimately, save money.

Even new homeowners are capable of profiting from a refinance. Although they might be hesitant due to recent rate hikes and the uncertainty that election season inevitably brings, now is still an ideal time to see if a refinance is in their best interest.

As we pull out of election season and look to the New Year, here are the key market traits to consider when helping your clients decide whether to refinance a home.

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1. Time

Make sure the homeowner has the time to devote to the refinancing process. Whether it’s weighing options and rates, waiting on an appraiser or submitting loan documents, refinancing can be a lengthy process.

Homeowners should consult with a loan officer to ensure refinancing is the best option for them and their current situation.

For example, just because someone might be getting lower monthly payments upfront, it’s not necessarily benefiting them in the long run if it’s extending their loan an additional five years or they are going to pay excessive fees to refinance.

2. Market value

With inflated home prices in cities across the country and threats of a housing bubble, it’s paramount for the homeowners to keep in mind the current market value of their home.

If home prices in the area have recently gone up, do background research to ensure it’s a stable increase.

If it’s a temporary increase caused by a quick expansion to accommodate growing populations, a home may drop in value quicker than expected, which leaves the homeowner with little equity in their home or upside-down on their new mortgage.

If a home has dropped in value or is potentially anticipating a drop before closing the loan, refinancing may not be best for the homeowner as it can tack on extra costs, such as private mortgage insurance.

3. Credit score

Credit scores are invaluable when it comes to refinancing a home.

While the golden rule is still true — the higher a credit score, the lower a mortgage interest rate — more options are popping up every day in regards to alternative options.

Moving away from credit scores, some lenders base eligibility off of employment history, monthly paychecks and history of on-time payments — areas the modern-day homeowner has more concrete control over adjusting.

When all else fails, having a co-signer can also help when looking to refinance.

At its best, refinancing helps free up finances in the short-term and can save money in the long haul. If homeowners are unsure of their next step, it’s always wise for them to seek the advice of a third party.

Help in making smart financial decisions ultimately makes for happy homeowners.

Erin Sheckler is the president of NexTitle in the Greater Seattle Area. Follow NexTitle on Twitter or connect with Erin on LinkedIn

Email Erin Sheckler