How can I tell if my house is worth enough to refinance?

Posted by  on Aug 27, 2014

Q: When I wanted to refinance a couple of years ago, I found out that the value of my house had dropped below the money left on my mortgage, so I could not refinance. I know that prices have been going back up, so how can I tell when the value of my house has gotten high enough to refinance?

A: The starting point would be to look at the amortization schedule of your current mortgage loan, because that will tell you what your remaining balance is. Don't overlook this step, because assuming you have been keeping up with your mortgage payments, your balance should be lower that it was when you last tried to refinance. In other words, the hurdle you have to clear should be a little lower this time around.

Most mortgage lenders are probably going to require an equity cushion over and above the amount you borrow, perhaps as much as 20 percent. So, your mortgage balance plus 20 percent is the target you need your home's price to meet or exceed in order to refinance.

There are a variety of websites that estimate the value of properties, and this might give you a rough idea of how much progress your house's value has made. However, be aware that these are very much broad-stroke estimates based on generalizations. So, as a reality check, you should look at recent sales of neighborhood properties comparable to yours to see what homes in your area are actually selling for.

An actual mortgage appraisal will dig even deeper than this, taking into consideration things such as the materials used in your house and its overall condition. So, if there are any problems with the house, take those into account when estimating the value.

If it looks like you may be in a position to refinance, get in touch with a lender as soon as possible because low mortgage rates may not wait around for you much longer.

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