Denver currently records mortgage interest rates in the range of 3% for all its fixed periods. These reduced rates often encourage most homeowners to refinance their properties. To help you avoid being blindsided, here are key things to consider when refinancing your mortgage:
Evaluate your home’s equity
The median home value in Denver now is about $465,466 with a predicted rate of -1.7% within the year. To refinance, you will need a minimum of 20% home equity to get that new loan.We suggest that you consult your property manager early enough to assess your exact needs.
Watch your credit score
Denver’s current mean 30-year fixed rate for a mortgage refinance has increased to 3.12% unlike the 3.20% rise in the nationwide rate. Mortgage lenders in Denver now demand a credit score of more than 740 to qualify for some of the best rates in the market. To help increase your credit score you could try to make timely payments of your minimum balance, fix your credit mistakes from your credit reports, and keeping your old credit cards with excellent credit record open.
Beware of the debt-to-income ratio
Debt-income-ratio (DTI)is the fraction from your overall monthly income that caters to debt payment. For an owner-occupied residence in Denver today, you will need to have a DTI of at least 43% for your refinance application to go through. If your monthly house payment is under a maximum of 28% of your overall monthly income, that increases your chances of succeeding at refinancing it. To improve on your eligibility, you may have to pay off some of your current debts before refinancing.
Watch out forrefinancing costs
Refinancing costs in Denver range around 3% to 6% of the total loan value and borrowers have a variety of options in managing them. For instance, you can roll it to your new loan and raise its principal rate or take a “no-cost” refinance to cater for the closing costs. Shop around for better deals and always negotiate fora lender to offset some of these costs.
Rates vs. the Term
Besides setting goals for refinancing your mortgage, you need to define the rates and terms that you are after. If you were aiming to reduce your monthly payments, you would want to go for a loan with the longest term and lowest interest rates possible.
Keep an eye on refinancing points
Refinancing points refers to the amount payable at closing to the lender in exchange for decreased interest rates. One point would mean 1% of your mortgage amount. As you keep an eye on interest rates, remember to determine how many points you will pay with each loan.
Determine your break-even point
Beak-even point is the point at which your refinancing costs are catered for by your monthly savings. Let’s assume that it costs you about $3000 to refinance and that you have $250 monthly savings over the previous loan. It would take you at least a year to recoup your money back but refinancing wouldn’t be practical if you are planning to sell the mortgage within the year.
Private Mortgage Insurance (PMI)
If yourDenver-based home equity is less than 20% andits value has depreciated, then you might have to pay for private mortgage insurance (PMI) when refinancing. Work closely with your lender and/or project manager to calculate the possibility of your PMI to be added to your mortgage payment.
Don’t forget about taxes
If you refinance and start paying lower interests, your tax deductions are more likely to reduce. It’s a common trend among homeowners as it lowers federal income tax bills. Given the new tax policies and unpredictable economic trends, it would be best to start consulting your tax advisor before refinancing.
The Bottom Line
Mortgage refinancing can be a bit complex, especially if it is your first time. If you are not keen enough, you might easily be caught in the “interest rate trap” especially if you are dealing with a seller’s market such as that in Denver. With a possible recession ahead, those looking to refinance need to be very diligent when making this decision. You can start by speakingto a trusted lender or one of our property managers for professional help. This will assist youto make an informed decision and improve your chances of getting a better deal. If refinancing is the way to go, start by researching the above factors and consult an expert when stranded.