Credit Score Improvements

Category: Finance.

This is a question many homeowners may have when they are considering re- financing their home.

There are some standard situations where a homeowner might investigate the possibility of re- financing. Unfortunately the answer to this question is a rather complex one and the answer is not always the same. These situations include when interest rates drop, when the homeowner's credit score improves and when the homeowner has a significant change in their financial situation. Drops in the Interest Rate. While a re- finance may not necessarily be warranted in all of these situations, it is certainly worth at least investigating. Drops in interest rates often send homeowners scrambling to re- finance. It is important to note that a homeowner pays closing costs each time they re- finance.

However the homeowner should carefully consider the rate drop before making the decision to re- finance. These closings costs may include application fees, appraisal fees and, origination fees a variety of other costs and may add up quite quickly. 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. Due to this fee, each homeowner should carefully evaluate their financial situation to determine whether or not the re- financing will be worthwhile. Credit Score Improvements. Lenders are in the business of making money and are more likely to offer favorable rates to those with good credit than they are to offer these rates to those with poor credit.

When the homeowner's credit scores improve, considering re- financing is warranted. As a result those with poor credit are likely to be offered terms such as high interest rates or adjustable rate mortgages. The good thing about credit scores is mistakes and blemishes are eventually erased from the record. Homeowners who are dealing with these circumstances may investigate re- financing as their credit improves. 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. For this reason homeowners should consider the option or re- financing when their credit score begins to show marked improvement. When credit scores are higher, lenders are willing to offer lower interest rates.

During this process the homeowner can determine whether or not re- financing under these conditions is worthwhile. Homeowners should also consider re- financing when there is a considerable change in their financial situation. Changed Financial Situations. This may include a large raise as well as the loss of a job or a change in careers resulting in a considerable loss of pay. Homeowners who are making considerably more money might consider re- financing to pay off their debts earlier. In either case, re- financing may be a viable solution. Conversely, those who find themselves unable to fulfill their monthly financial obligations might turn to re- financing as a way of extending the debt which will lower the monthly payments.

In these cases a lower monthly payment may be worth paying more in the long run. This may result in the homeowner paying more money in the long run because they are stretching their debt over a longer pay period but it might be necessary in times of need.