Federated Lending Corporation

Refinancing your home after improving your credit

When you apply for a home mortgage, the rate of interest you pay is typically tied to your credit score. The better your credit score, the lower interest rate you should be eligible for. Frequently, new home buyers may not have established a strong credit history and therefore are paying higher interest rates. That means you should know when to refinance your home.

Refinancing For Better Rates

Before you make a decision to refinance your home, it is important to know when to refinance. First you must decide what your goals are which may include:

1. Lowering your monthly payment

2. Lowering the amount you will pay for the life of the loan

3. Taking cash out for another big purchase

Each of these goals will result require careful consideration. First, you need to know what current interest rates are on your mortgage. You will also need to consider how long you have had your current mortgage and how long you plan to stay in your home. Only when you have this information should you try to answer the question should I refinance?. Here are some general tips to help you determine when to refinance your home.

Attractive Lower Interest Rate

Typically, if you cannot lower your rate by at least one-half a percentage point, you may be better off with your current mortgage. However, if you have improved your credit score, refinancing now could be a smart move. Not only will you be able to take advantage of lower rates, you may also be able to reduce the amount of time you will be paying for your mortgage.

Why Length of Time Matters

First, you should consider what happens when you are paying a 30-year mortgage. Consider this: If you take a $100,000 loan at a 5.25 percent interest rate, over 30 years you will pay $98,793 in interest. However, that same amount, at the same rate over 15 years will result in total interest of only $44,698; nearly one-half less. This means if you currently have a 30 year mortgage that you have been paying on for five years, you may be eligible to refinance into a 15 year mortgage, potentially reducing your payments and saving you tens of thousands of dollars in overall costs.

Think Carefully About Stability

It is important to remember mortgages have associated closing costs. That means if you are going to be in your home for five or fewer years, you may not recover the cost of refinancing. This is particularly important if you are considering purchasing another home; you may want to take advantage of a lower rate on a new mortgage.

One of the factors you should consider when trying to determine when to refinance is your credit score. The more it has improved since you first took out a mortgage, the more likely you are to get a great deal on a new mortgage. If you live in the Bucks County, PA area and you have noticed a significant increase in your credit score, contact Federated Lending to talk about your refinancing options.