When you refinance your home in Sacramento, CA, you change the terms of your mortgage. You can think of it as taking out a new loan to pay off your current mortgage all at once, and then starting payments on the new loan. It’s a good strategy to get better terms because of a recent change, and the change can come from a shift in the economy, a new personal credit score, or a new job with a new salary. However, there are times when refinancing can be a great idea and times when you should avoid doing so.
You Have No Home Equity To Spare
Home equity is the value of your home minus the value of your mortgage. Home equity usually goes up over time because homes appreciate in value and your mortgage drops as you pay it off. Refinancing often uses your home equity as a collateral asset to get you those better terms. If you don’t have much home equity because you’ve only just started paying your mortgage or you took out a home-equity loan then you probably won’t get a refinancing deal.
Your Credit Score Isn’t Good Enough
A credit score combines a lot of factors like how steady your income is, how consistent you are at making payments, and how many loans and debts you already have. You need a good credit score to get a decent home loan, and if you want better terms then your credit rating needs to be better. You can also get better terms by using home equity, but if your credit score has slipped since you bought your home in Sacramento, CA then you might not get any refinancing options.
You Have Trouble Making Mortgage Payments
Your credit rating combines a lot of financial factors including whether you pay your bills on time, but there’s one factor that the bank will pay close attention to your mortgage payments. You could have a good credit rating while making a few late mortgage payments, but a bank might not want to refinance your loan if they don’t think you can pay them on time. Even if the new monthly payments would be lower, the bank would still consider late payments a risk they don’t want to take.
You’ve Almost Paid In Full
If you only have a year or two left on a 30-year mortgage, then there’s not much point in refinancing. Even if an emergency comes up that forces you to change your spending habits, a bank probably wouldn’t want to refinance for such a small amount of money. Instead, you should consider using your home equity to take out a loan you can use to pay off your mortgage and use the rest of the money to cover your emergency.
Home refinancing can be a good way to get a better loan after a big life change. However, some changes will keep refinancing offers away. Still, you may have other options thanks to home equity or a better credit score, so homeowners in Sacramento, CA should contact the Professional Mortgage Associates to find out more about their options.