Deciding whether or not you should refinance is contingent upon the rate that is available to you. Obtaining a lower interest rate is one of the best reasons to refinance a loan whether it be your house, car, boat, business, etc. Refinancing when interest rates are low can shorten the term of your loan and cost you significantly less in interest payments. Lower interest rates also give you a chance to convert a variable or adjustable rate loan to a fixed rate. Low rates may even be a reason to consolidate expensive debt (debt with higher interest rates). These are all great conversations to have with your financial professional.
You may receive an alert from InvestorKeep letting you know that your loan rates are high. It’s important to note that your rate is largely determined by three factors as noted below. If you are weak in these areas you will most likely not be eligible for the best rates. It is worth talking to your financial professional to see how you can improve your ability to get better rates.
Debt to Income (DTI):Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income. This number is one way lenders measure your ability to manage the monthly payments required to repay the money you plan to borrow.
Loan to Value (LTV): LTV is calculated by dividing the amount borrowed by the value of the property. This is the ratio that is often used to determine how much you as the borrower need as a down payment.
Credit Score (FICO): The most widely used credit scores are FICO Scores, the credit scores created by Fair Isaac Corporation. FICO Scores are calculated based only on information in a consumer's credit report. 90% of top lenders use FICO Scores to determine the credit worthiness of a borrower.