HOME EQUITY: You will need equity in your home in order to refinance.  Refinancing with little or no equity is typically not an option with conventional loans, but there could be options available.  Speak with Simplicity today to see if your mortgage is a good candidate for a refinance.

CREDIT SCORE:  Over the years some lenders have tightened their loan approval standards.  Your credit score may not qualify you for today's lowest rates.  Often a credit score of 760 or higher is necessary for the lowest interest rates. 

DEBT TO INCOME RATIO (DTI):  Lenders have not only tightened credit requirements but also debt to income ratios.  Typically the lenders want to keep the monthly housing payments under 28% maximum of your gross monthly income.  Overall debt to income should be 36% or less.  There are cases where other positive factors in your financial situation may allow for DTI's as high as 45%.

REFINANCING COSTS:  You have to weigh the cost of the refinance with your savings.  A refinance can cost between 4% and 5% of the loan amount.  There are also options for a “no cost” refinance, where the closing costs are offset by a higher interest rate.  The experts at Simplicity can analyze your mortgage situation and help you determine if a refinance would save you money on your mortgage. 

RATE VS TERM:  Consider your financial goals when trying to determine what loan options are best for your refinance.  If you want to reduce monthly payments, you will want a loan with the lowest interest rate for the longest term.  If you want to pay less interest over the life of the loan, look for the lowest interest rate at the shortest term.  If the goal is to pay off the loan as fast as possible, you want a loan with the shortest term, with payments you can afford.

TOTAL INTEREST PAID: Mortgage loans are front loaded with interest, if you refinance with a 30 year loan, more of your monthly payment will be going to interest and less to the principal.  This means it will take even longer to pay off your house and you will pay more in interest.  Compare what you have already paid and what you will pay on your current loan with what you have paid and will pay on the refinance to understand the overall costs.  Choosing a suitable term for your new loan is a balancing act between an affordable monthly payment and reducing your borrowing costs. 

POINTS: When comparing refinance products and options, make sure you look at both the interest rate and points.  Points, equal to 1% of the loan amount, can be paid to bring down the interest rate, but pay attention to this cost when making the decision to refinance.  It will be paid at closing or rolled into the new loan.

BREAK EVEN POINT:  This is one of the key things to consider and calculate if are unsure if a refinance is best for your situation.  This is the point where the monthly savings will exceed the cost of the refinance.  If you plan to move or sell before the break even point, the refinance most likely does not make sense.

• Example: if the refinance cost you $4000 and you are saving $100/month it will take you 40 months to recoup that cost. 

• Example: if the refinance cost you $3000 and you are saving $300/mo it will only take 10 months for the savings to be realized. 

PRIVATE MORTGAGE INSURANCE (PMI):  Homeowners who have less than 20% equity in their home will be required to pay PMI.  If you are already paying PMI this may not affect your monthly payment, or perhaps you will be able to remove it, lowering your payment.  On the other hand, if your home has decreased in value and you will no longer have 20% equity at the time of the refinance, you may have to start paying PMI.  The addition of PMI may offset any reduction in monthly payment due to a lower rate.  The experts at Simplicity can help you determine how PMI may affect your refinance.

TAXES:  Though the mortgage interest deduction may not be as widely used as in previous years (due to the increase in the standard deduction as part of the Tax Cuts and Jobs Act of December 2017), refinancing will alter how much you pay each month in interest.  Homeowners can deduct interest on up to $1 million in mortgage debt (or $750,000 for homes bought on December 15, 2017 or later).  Depending on your situation, it may be wise to consult a tax adviser to understand tax implications of a refinance.