Refinancing a home purchase loan is a commonly availed option for many homeowners who are looking for reducing their monthly repayments. But just because it is commonly availed by many homeowners, does not mean that it is good for you as well. Whether applying for a mortgage refinancing is a good option for you or not depends on your situations.
The first important factor that you need to consider is your loan-to-value ratio (LTV). It is advisable that your LTV is at least 80 percent of your loan in case of refinancing. An equity amounting to at least 20 percent of your loan is advisable. The lower the LTV, the better chances you stand for a refinancing with better rates.
The second important aspect is the interest rate of the new loan. Calculate how much the new interest rate will prove beneficial to you and the monthly savings that you will achieve with the new refinanced loan. This will give you an idea whether you should apply for the loan or not. Check about the closing rates as well when calculating the savings. Calculating new interest rates along with closing costs will give you a detailed idea regarding the worth of the refinanced loan.