Refinancing your home loan might be a wise move to make during a time when interest rates are low, but your ability to refinance will depend on several factors. Your credit is one of these factors, but the appraisal on your home is another. As you consider refinancing right now, you should understand how the appraisal of your home may affect refinancing your house loan.
Conditions Needed To Benefit From Refinancing
The first thing to understand involves the conditions that need to be present in order to make refinancing beneficial for you. To understand these conditions, you must first examine the reason you want to refinance. One of the main reasons you might be doing this is to lower your monthly payments as a way of saving money. If this is the reason you are refinancing, then you must make sure:
- The interest rate you would get on the new loan is lower than the rate you are currently paying.
- You have good enough credit to qualify for a loan.
- You owe 80% or less of the value of the home.
If all of these are true, then refinancing as a way to save money might be a beneficial move for you to make.
Why An Appraisal Is Needed
When you refinance, your lender will require an appraisal of the home. This is required because lenders will typically only loan 80% of the value of a house. To determine if you can refinance for the balance you currently owe on your home, the lender will request an appraisal. From this amount, the lender will verify that you owe 80% or less of the current market value of the house.
If prices of homes in your area have significantly dropped in recent times, you might not qualify for refinancing. This can occur if the value of your home drops enough to where you owe more than 80% of its value.
How This Could Affect Your Ability To Refinance
If the appraisal reveals that you owe more than 80% of the value of your home, refinancing could be a bad idea. If you do this, you might be required to purchase private mortgage insurance (PMI), which can amount to 0.3 to 1.5% of the total amount of your loan. If your current loan does not have PMI, you probably should not refinance. The only way to get around paying this if you still choose to refinance your loan would be to get a second appraisal and hope it comes in at a higher amount.
Refinancing can be a great way to save money, but you will need to get an appraisal before you can go through with it. For more information, contact Liberty Escrow Inc or a similar company.