Equity in the home plays an important part in determining the interest rate you will ultimately receive when refinancing. To receive the best rates you need to own a minimum of 20% of your home's value (also known as loan to value or LTV). Put differently, to get the best rates you must only borrow up to 80% LTV.
A very common occurrence, when purchasing a home, is for a borrower to put down 10% and borrow 90%. Such a loan can be structured in two ways. Either the borrower has an 80% first mortgage and a 10% second mortgage with the 2nd mortgage receiving a far higher interest rate, or has a 90% loan with an interest rate that is equivalent to a loan at 80% LTV, but with mortgage insurance added to the monthly payment. Mortgage insurance will add a significant amount to the mortgage payment.
As soon as the value of your home increases to a point where you own 20%, generally it is in your best interest to refinance. Especially if you have maintained a good credit rating, have a similar income, and added some money to your asset accounts. The strategy here is to consolidate your 1st and 2nd mortgages into one loan and receive a 1st mortgage interest rate for the entire debt, thereby eliminating the costly 2nd mortgage. Or refinance, and after receiving a certified appraisal it's obvious that the loan amount will be under 80% LTV, mortgage insurance will no longer be required.
Home equity has played a negative role in our current mortgage climate and has affected scores of homeowners throughout the country. Especially those who have purchased their home in the past 3 years. However, if you are in the fortunate position of finally owning more than 20% of your home's value, a refinance is the right strategy to save you a substantial amount of money.
My name is Allen Sayble and I have been a loan officer since 2001. I specialize in poor credit home loans for borrowers with less than stellar credit and income situations, but also work with refinances and purchases for borrowers in good standing. I am based out of Ashland, Oregon and can write Oregon Home Loans and offer you California Home Loan Mortgage Rates . At this time in the mortgage business it is most important for each borrower to work with a professional loan officer. It's also best to work with a broker, like myself, who has access to all of the different lenders and not be restricted to one lending institution or bank
Please visit my website http://www.mortgageconsumer.com to learn valuable information about the loan business so that you can be well informed about the loan process and make the most educated decision with regards to your home refinance rates and home purchase rates. You can also contact me at 541-324-9623