Refinancing can be an effective way to lower your monthly payments, but it can also be used for other reasons, such as paying off debt, financing improvements to your home, etc.
When refinancing you should:
Although there are different loans that can help you lower your payment, the right decision depends upon your current situation and your short and long-term goals.
Circumstances change over time and your short-term goal may be to lower your payments while your long-term vision involves something entirely different. You need to determine your short-term and your long-term goals to see whether refinancing a loan can help you meet them.
There are many factors that affect not only the ability of a customer to qualify for a loan, but also the rate they may be offered. Some important factors include:
Your monthly debt obligations divided by your income provides your debt-to-income ratio. If the amount of your income that is required to pay existing bills is high, this means that you have less money available to take on new debt or pay for day-to-day expenses and emergencies. Loan programs often include a maximum “DTI” ratio that a borrower cannot exceed because higher ratios increase loan risk.
The percentage of the loan amount to your property value (loan amount divided by the property value) is the loan-to-value ratio. The “LTV” ratio can affect a borrower’s interest rate and his/her ability to qualify for a loan.
There are other factors that may affect the rate you are offered, including but not limited to: