When Should I Refinance My Mortgage? | LA Loans | Bonvenu Bank

You’ve probably heard pitches and received letters in the mail touting the benefits of refinancing your mortgage. What does that mean for you? When you refinance your mortgage, you get a new home loan to replace your current one. The appeal is a lower interest rate to help you save money on your monthly payment, or the ability to access your home’s equity as cash. 

Bonvenu Bank can help you understand the benefits of refinancing a home in Louisiana and decide whether it makes sense for you. 

The Benefits of Refinancing a Mortgage

Refinancing your mortgage can help you get ahead financially in numerous ways, including: 

• Reducing your monthly mortgage payment by securing a lower interest rate 
• Providing a shorter loan term (e.g., 15 vs. 30 years) to help you pay off your mortgage faster
• Helping you pay down high-interest credit card debt by tapping into your home’s equity 
• Changing your mortgage term from adjustable to fixed to align with your current needs 

How to Qualify for a Refinance

Lenders will assess these factors to determine your eligibility for refinancing.  

1. The amount of equity in your home: Typically, lenders require that you have some equity before you can refinance. If you’re not there yet, consider making an extra mortgage payment or paying more than your monthly payment to reduce your principal. 
2. A good credit score: If your credit score has decreased since you took out your mortgage, you may not qualify for refinancing. Before you apply, be sure to improve your credit score. You may also consider tapping into a government program that can offer assistance, like FHA. 
3. Job and income stability: If you were unemployed or have switched jobs over the last several years, you might not qualify for a lower rate. Lenders also like to see that you have extra cash on hand in case you lose your job.

Deciding Whether to Refinance

Refinancing your home loan isn’t free. At a minimum, you’ll pay closing costs, attorney fees and bank fees. The money you save by refinancing, however, could outweigh these upfront costs. To find out if refinancing makes sense for you, calculate your break-even point. This will help you determine how long it would take for the refinance to pay for itself in savings. Here’s how it’s calculated: 

Break-even point (in months) = Closing costs/monthly savings

Consider this example:

• $5,700 in closing costs (with taxes)
• $150 of monthly savings 

Using the figure above, it would take 38 months to break even on the cost of refinancing. In general, if you plan to stay in your home for longer than the break-even point, refinancing can be beneficial.

Refinancing with a VA Loan

If you are a veteran, consider refinancing with a VA loan backed by the Department of Veterans Affairs. If you qualify, this is considered one of the best mortgage loans available to you. VA loans require no down payments or mortgage insurance, however you may be charged a VA Funding Fee. Typically, these home loans have more lenient qualifications than conventional mortgages in terms of credit score and the amount of home equity required. 

You’re eligible for the Bonvenu Bank VA financing program if you’re an active-duty servicemember or veteran who was honorably discharged and meets one of the following criteria: 

• You have served 90 consecutive days of active service during wartime
• You have served 181 days of active service during peacetime
• You have more than 6 years of service in the National Guard or Reserves
• Your spouse was killed in the line of duty and you have not remarried

Refinancing with an FHA Loan 

If your credit score isn’t excellent or you have a high debt load and not much equity in your home, an FHA loan may help. This is another home loan program that’s backed by the government. The Federal Housing Administration is the world’s largest insurer of residential mortgages. These loans are available to homeowners with the following qualifications:

• You have a FICO score of at least 500 580
• You have steady income and proof of employment
• The home being financed is your primary residence
• You’re able to pay a mortgage insurance premium (this is required)

Refinancing can help homeowners save money or obtain cash, but everyone’s situation is personal and unique. Connect with one of our Louisiana Mortgage Lenders to learn more about your refinancing options.