This is a question many Arizona homeowners  are asking in this challenging financial climate. Unfortunately the answer to the Arizona refinancing question isn’t always straightforward. It depends on a given homeowners exact situation.There are some standard situations where a homeowner might investigate the possibility of re-financing. These situations include a significant decline in interest rates, an improvement in the homeowners credit score and when the homeowner has a significant change in their financial situation. While none of these circumstances automatically warns refinancing, they do suggest that a homeowner should at least look into itit is certainly worth at east investigating.

Should You Refinance If Interest Rates Drop?

A decline in home mortgage rates are probably the most common reason for homeowners to consider refinancing. But a drop in interest rates doesn’t necessarily mean they’re refinancing is going to save money. It is important to note that a homeowner pays closing costs each time they re-finance. These added expenses may include application fees, origination fees, appraisal fees and a variety of other expenses and may add up to more than you’ll save with the decreased interest rate over reasonable period of time. A homeowner has to add up the cost of the current loan and compared to the total cost of the new loan to decide whether or not the re-financing will be worthwhile. In general the closing fees should not exceed the overall savings. and the amount of time the homeowner is required to retain the property to recoup these costs should not be longer than the homeowner plans to retain the property.

What Does a Credit Score Have To Do with Arizona Refi?

When the homeowner’s credit scores improve, considering re-financing is warranted. Someone with a good credit score can get loans at lower rates because they represent a lower risk. As a result those with poor credit are likely to be offered terms such as high interest rates or adjustable rate mortgages. Homeowners who are dealing with these circumstances may be able to refinance on better terms when their credit score improves. One good thing about the rating agencies is that they don’t necessarily keep the history of the distant past. If your current rating that counts. As a result, homeowners who make an honest effort to repair their credit by making payments in a timely fashion may find themselves in a position of improved credit in the future.

When credit scores are higher, lenders are willing to offer lower interest rates. For this reason homeowners should consider the option or re-financing when their credit score begins to show marked improvement. During this process the homeowner can determine whether or not re-financing under these conditions is worthwhile.

Whatever your credit rating status, you should definitely shop around when refinancing.

Changed Financial Situations

An Arizona homeowner should also investigate looking for different terms on the mortgage if their financial situation changes significantly. This this applies whether or not the change is good or bad (a large raise versus downsizing). In either circumstance, re-financing may be a viable solution. If your income goes up a lot, you may want to refinance in order to you can shorten the length of the loan thereby decreasing your total interest payments. On the other side of the coin, those who find themselves unable to fulfill their monthly financial obligations might turn to re-financing in order to reduce their monthly payments. Unfortunately, in the recent financial climate many Arizona homeowners need to consider re-financing for this reason. The downside of this is that the total cost of the loan will be higher because they will be paying it back over a longer period of time but this move can make the difference between being able to keep the home or going into foreclosure. In such circumstances a lower loan payment may be worth paying more in the long run.

You may also want to get an overview of the benefits of refinancing

Get a Home Equity Loan

The most important word in “home equity loan” is equity. Start with the fair market value of a home, subtract the mortgages (first and second) and any liens against the property, and what you have left is the equity. This equity can be used as collateral to secure cash in the form of a loan or mortgage.

The amount borrowed is based on a percentage of the appraised value of the home. The percentage rate can vary from 75% to 125%. The length of the financing will also vary. The two main types of home equity loans are fixed rate loans and adjustable rate loans.

Fixed rate loan – provides a fixed amount of money at a fixed interest rate, repayable in equal payments over the life of the loan. Fixed rate financing costs more in set-up fees and comes at higher interest than adjustable rate loans. But if homeowners stay put and interest rates go up, they will save money over a comparable adjustable rate loan.

Adjustable rate loan – the interest rate goes up or down according to the index upon which it is based. Adjustable rate loans will have a cap on how high the interest rate can go. Usually called ARMs (Adjustable Rate Mortgages), this type of loan has lower up-front costs and starts at a lower interest rate than fixed rate financing. This means lower initial monthly payments.

Home Equity Line of Credit (or HELOC) loans offer unique options for borrowers. HELOCs are generally adjustable to the prime interest rate, which means if the prime rate goes up or down, then so does your payment. The primary benefit of a HELOC is that as you pay it down, you still have access to your equity (usually through a check or credit card). That equity is always available to you for investments, paying off high interest debt, vacations, or to pay off unexpected bills.

Putting Home Equity to Good Use

According to the Consumer Banker Association, the top ten reasons for getting a home equity loan are:

Debt consolidation, the most popular reason people cash out their home equity, is a smart form of financing because of the money it can save. For example, say you owe $15,000 on a credit card that charges 17% interest. If you get a debt consolidation loan at 9% interest and pay it off in five years, you’ll save you over $30,000!

If you’re paying more than 15% interest on anything, you should seriously consider a debt consolidation loan. The right terms could drop your monthly payments by 35%-50%, depending on interest rates, origination costs and tax consequences.

Even for people who have bad credit or who have filed for bankruptcy, a home equity loan is not out of reach. It can be a good way to make a fresh start.

Which way is best to tap into your home equity?

There are several options, and a few things to consider, when deciding which right for you.
If the interest rate on your mortgage is higher than current rates, it may make sense to refinance and take a lump sum of cash from your home’s equity. You’ll simply refinance your mortgage to a larger loan amount and take the difference in cash.

Another option is a home equity loan. A home equity loan is essentially a second loan that you take out in addition to your first mortgage. Commonly referred to as a “second mortgage,” a home equity loan allows you to tap into your home equity to get cash without refinancing your first mortgage. A home equity loan is a good choice if you’d like your cash in a lump sum and you already have a great rate on your first mortgage.

A home equity line of credit (HELOC), your third option, is very similar to a credit card except that it uses the equity in your home as the revolving line of credit. You make monthly payments only if and when use the money. But, unlike credit cards, the interest is usually tax deductible*(Check with your Accountant). With a HELOC, you can get a lump sum at closing, or elect to take only part of your money and draw on the rest when you need it.

Unlike a home equity loan or a refinance, you can get a home equity line of credit in as little as ten days. A HELOC is a good choice if you’d like ready access to your home equity when you might need it.

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