Mortgage Refinance Debt to Income Ratios Affect Rates

Considering a mortgage refinance, particularly the 125% equity line of credit refinance?

In addition to your credit score, potential lenders will look at your debt to income ratio and other factors to determine the lines of credit they are willing to extend to you and the interest rate that their offer will cost you. Most banks link their credit card interest rates to the prime lending rate as set by the Federal Reserve Bank. Because your refinance cash out increases your debt to income ratio, some credit card lenders will increase their interest rates to reflect their higher risk.

There are a number of different websites on the internet that have a loan refinance calculator that can help you find out whether mortgage refinancing at a slightly higher rate with no closing costs is the smarter choice. It will also help you see the break even points or if you might in fact lose some money in the deal.

The loan refinance calculators do this by determining how much you would pay for the no closing cost mortgage refinance every month and comparing it to the cost of getting a loan with traditional closing fees. It then simply subtracts one sum from the other and comes up with the number of months until you hit a break-even point.