Refinancing Can Provide Financial Solutions

By Karen Lawson
Local Lender Columnist
Jun 27, 2007
You've heard plenty about sub-prime mortgage issues and foreclosure rates. You're considering refinancing, but want to avoid using up all of your home equity. Depending on your needs, cashing in some of your home equity can help you achieve your financial goals.

Home Value Can Impact Refinancing Plans

Many real estate firms and mortgage lenders provide free online calculator tools that can help you estimate the value of your home. Your home equity is roughly the difference between your home's present value and the amount you owe on mortgage loans. Your available equity is also driven by the costs of refinancing because typically these costs are wrapped into the new loan--the more equity used to originate the loan, the less available to be taken out as cash.

Another factor to consider is loan to value ratio, or LTV. The LTV is the amount of your mortgage balances divided by your home value. As an example, a home worth $300,000 and a mortgage balance of $240,000 has an LTV of 80%. If you're refinancing for more than $240,000, you lender will almost certainly require mortgage insurance (MI), which adds an additional cost to your monthly mortgage payment. It may be possible to avoid paying MI by taking out a home equity loan or line of credit instead of refinancing. Mortgage lenders can help you explore financing options that match your needs.

Consider Your Reasons for Refinancing

Although Denver hasn't sustained severe declines in property values, it's wise to remember that regional markets can fluctuate, and this can impact your home equity. Careful evaluation of your reasons for refinancing can help you maintain a cushion of home equity while reducing costs associated with high interest rate debt. If you're refinancing to pay for home improvements, consulting a Denver real estate professional can help you determine if your project will add value to your home. It's important to balance lifestyle needs, regional market trends, and your financial security when refinancing your mortgage.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds a Master's degree in English from the University of Nevada, Reno.